Morgan Stanley raising pay hurdle for its financial advisors in 2024

'It's a tug of war. The firms want to keep more revenue, and the financial advisors want to do the same,' an industry recruiter says.

Morgan Stanley’s 15,000 financial advisors will have to work harder in 2024 and generate more revenue to earn the same amount of take-home pay as they did this year.

Large wirehouses like Morgan Stanley rely on complex, cumbersome pay schemes known as “grids” to determine what percentage a financial advisor keeps of each dollar of revenue he or she generates; wirehouse advisors typically pocket in the neighborhood of 40 cents per dollar of revenue.

But reaching that level will be a little more difficult for Morgan Stanley’s financial advisors starting in January. According to sources familiar with Morgan Stanley’s plans, the firm will raise the incentive compensation grid by 10% next year.

That means that financial advisors who produced revenue near $1 million annually this year will have to increase that by 10%, or generate $1.1 million in fees and commissions, to take home the same percentage of revenue as they did this year. Morgan Stanley has not made changes to its pay grid levels or thresholds since 2020, according to those same sources.

Industry website AdvisorHub.com first reported the news of the pay changes occurring next year at Morgan Stanley. The large firms typically outline those compensation plans in the fall. In the past, Morgan Stanley has tweaked its compensation plan to reduce the payout to low-performing brokers and financial advisors.

To soften the blow, Morgan Stanley is increasing business plan development allowances, a way for advisors to invest in their practices, by 10%.

“What this means is if a financial advisor’s production next year stays flat, then the payout will go down,” said Danny Sarch, an industry recruiter.

The increased pay plan thresholds were made, in part, “to acknowledge business growth, our continued investment in the business, and market considerations,” according to sources familiar with the plan.

“I think it’s embarrassing for firms to sugarcoat this stuff,” Sarch added. “It’s a tug of war. The firms want to keep more revenue, and the financial advisors want to do the same. Morgan Stanley is highly focused on profitability, and the last frontier to touch is advisor compensation.”

In the past, Morgan Stanley’s CEO and chair James Gorman has made changes in financial advisors’ compensation that some clearly did not like, including a compensation plan that deferred from 6% to 11% of a financial advisor’s compensation up to eight years.

Many have bridled at the changes Gorman made to the wealth management business; from 2010 to the end of last year, the bank saw a net loss of 3,865 financial advisors who left Morgan Stanley for other firms.

“We are announcing the details of the plan early this year to ensure you are equipped with the information, tools and resources necessary to deliver the best value to your clients as you prepare your business for 2024,” Vince Lumia, head of field management at Morgan Stanley, said in a company memo. “The enhancements to the plan are designed to focus on driving growth and deepening client relationships by leveraging the unmatched resources of the Firm to help you maximize the full potential of your practice.”

Morgan Stanley is also eliminating payouts to financial advisors who do business with households that have less than $250,000 in assets, unless those clients meet certain growth exemptions. For decades, large Wall Street firms have been pressuring financial advisors to stop doing business with the less wealthy and focus on the richest clients, who are more profitable.