Keen to promote growth, Morgan Stanley puts a lid on its grid

Cash grid locked in, revenue bonuses cut -- but growth awards rolled out

By Andrew Osterland

Dec 6, 2012 @ 6:22 pm (Updated 10:08 am) EST

Morgan Stanley
(Photo: Bloomberg News)

Morgan Stanley upped the ante on growth for its nearly 17,000 financial advisers for next year.

The company released details of its 2013 adviser compensation grid this afternoon. No changes were made to the basic cash grid, but revenue bonus awards were cut by 2 percentage points, while the company implemented a new growth award program that puts the premium on drumming up new business.

“We want people to stay with the firm," said a Morgan Stanley official, "but we also want them committed to growing.”

The deferred revenue bonuses will now range from 0.5% to 4.5% on revenues ranging from $750,000 to $5 million-plus. They will vest in year eight if advisers take cash and in year four if they take Morgan Stanley stock. “It remains one of the richest deferred comp plans on the Street,” according to the bank.

The growth awards could help advisers make up for the smaller revenue bonuses. Advisers who show positive growth in net new assets and are among the top 40% of similarly experienced advisers in terms of revenue growth are eligible to earn between 2% and 5% of their grid revenue. They can also receive between 5 and 20 basis points on net new assets brought to the firm (maximum payment of $157,500), 35 to 50 basis points on growth in client loan balance (maximum $127,500), a 25% kicker in allowances for business development, and $2000 awards for associates to advisers. The award will be structured as a 5 year forgivable loan with the entire amount paid upfront in the first quarter of 2014.

“Resting on your revenue won't be enough this year for Morgan Stanley advisers,” said Alois Pirker, senior analyst with Aite Group. “They'll have to show growth to get what they got last year.”

Morgan Stanley also implemented a program for advisers to purchase company stock at a discount. Advisers with more than $400,000 in revenue can invest the lesser of 25% of their pre-tax earnings or $150,000 in company stock. They'll receive 20 bonus shares for every 100 purchased. Chairman Club advisers can invest up to $250,000 and receive 25% more bonus shares. The basic shares will vest immediately and be distributed on April, 15, 2016. The bonus shares will vest and be distributed on that date.

“Both legacy firms, [Morgan Stanley and Smith Barney], had programs like this and the advisers wanted it brought back,” said the official.