Morgan Stanley joined two of its competitors this week and tweaked its compensation plan to give brokers more incentive to improve performance.
Morgan Stanley, which employs the country's largest network of advisers, will reduce payouts to low-performing experienced brokers, expand awards for hitting performance targets and enhance bonuses for increasing lending, according to details of the plan confirmed by InvestmentNews.
In compensation plans announced internally this week, Morgan Stanley, Merrill Lynch Wealth management and UBS Wealth Management Americas all took a variety of steps to encourage all of their 40,000 advisers to emulate the industry's top revenue producers and cultivate the U.S.'s wealthiest clients. Wells Fargo & Co., owner of the country's third largest brokerage, has not yet announced its compensation plans for next year.
Morgan Stanley next year will require brokers who generate less than $2.5 million in commissions and fees to increase their revenue by 10% to maintain the same payout.
As it stands now, brokers earn between 28% and 47%, depending on their total annual revenue, according to the formula that determines broker pay. Advisers in the top bracket produce $5 million or more. Advisers with nine or more years of experience who produce less than $300,000 get just 20%.
But the firm will temporarily allow brokers to be paid for smaller accounts for up to two years, “allowing advisers time to bring additional assets to the firm and gain better visibility to clients' investments,” according to language from the plan confirmed by InvestmentNews.
The firm will also introduce a fee of 0.05% for adviser-managed accounts. The fee, which applies only to new accounts and will be capped at $15,000 per year, is part of the firm's effort to funnel clients into standard, nondiscretionary portfolios.
Morgan Stanley will also expand an award of between $20,000 and $300,000 for asset growth and lending growth. The award will now be available to all brokers with total growth of $300,000 or more; it was formerly just for the top 40% of brokers by annual revenue. The firm's revenue growth award will also be more widely available and can total up to 5% of total revenue.
One of the highlights of Morgan Stanley's plan is a provision that will increase by nearly 60% the top rate that advisers can earn for increasing loans like mortgages and security-backed lines of credit. In 2014, advisers will be able to earn $202,500 for increasing that lending.
Unlike its wirehouse competitors, Morgan Stanley does not have a parent company with a huge retail banking presence, and this year it has been working this year to increase its lending to its clients. The firm recently disclosed to federal regulators that its mortgage lending and Portfolio Loan Account program, which lends to clients against the value of their managed portfolios, helped drive new revenue in the third quarter.
Morgan Stanley employs 16,517 financial advisers, according to their last quarterly earnings report.