Two former Morgan Stanley financial advisors on Friday won a $1.1 million arbitration award against their old firm that centered on who controlled valuable deferred compensation money, the firm or the financial advisors.
The two advisors, Jeff Davis and William Swisher, both now work in Dallas for Ameriprise Financial Services after leaving Morgan Stanley, respectively, in 2020 and 2021. In the past, that would have meant an automatic forfeiting of deferred compensation, or a small amount of gross revenue the firm takes and holds, and which typically requires advisors to stay for years in order to vest.
But financial advisors automatically losing that deferred compensation, often referred to as the golden handcuffs in the securities industry, the moment they walk out the door of the old firm appears to be less automatic, with financial advisors gaining some legal wins of late. That's because advisors like Davis and Swisher are using ERISA - the Employee Retirement Income Security Act of 1974 - in their claims, alleging that Morgan Stanley's deferred compensation plan was in violation of that law.
"This was money that the advisors worked for at Morgan Stanley, which takes a percentage from their revenue or production and puts it in this deferred compensation program," said Alan Rosca, one of the attorney who represented the two advisors in the claim. "We think that's a violation of ERISA, and Morgan Stanley is not the only wirehouse that had a deferred compensation plan."
He added that earlier this year he won a $3 million claim on behalf of former Morgan Stanley advisors alleging similar violations of ERISA and had many more in the pipeline.
Davis and Swisher alleged that "they earned certain compensation for their work performed while in [Morgan Stanley's] employ, but that [the firm] improperly deferred said compensation for periods of time far in excess of the periods set forth by ERISA and forced them to forfeit the compensation upon their departure," according to the award.
The three-person arbitration panel, under the aegis of Finra Dispute Resolution, gave no reasoning for the awards. Morgan Stanley will pay Davis $297,000 in damages and $Swisher $145,000. The awards are almost doubled because the panel added 9% interest to each amount of damages, beginning in 2015 and running through last month. The panel also ordered Morgan Stanley to pay attorney's fees of $235,000.
Swisher, a 45-year veteran of the securities industry, worked for Morgan Stanley from 2012 to 2021, according to his BrokerCheck profile. Davis has worked in the financial advice industry for 32 years and was at Morgan Stanley from 2009 to 2020. Four other former Morgan Stanley financial advisors dropped out of the claim against their old firm.
"Morgan Stanley has long offered deferred compensation to financial advisors to reward them for loyalty and good guardianship during their employment," a firm spokesperson wrote Monday morning in an email. "This is not a retirement plan, and we will continue to aggressively defend against meritless attacks suggesting otherwise."
"It was the intention of ERISA to protect deferred compensation of employees," said Tom Ajamie, an industry attorney whose eponymous law firm has been working on similar cases in pursuit of financial advisors deferred compensation. "I'm glad to see Finra arbitrators enforce ERISA and return compensation due to financial advisors."
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