When Morgan Stanley released its
2019 compensation plan for its 15,632 financial advisers and brokers late last month, it made a point of saying that any changes to the grid, as it is known in the industry, would all be positive.
But the new compensation plan, which emphasizes the role of
financial planning and technology when advisers chase clients and assets, also contains a potential downside for some advisers who do not follow the new guidelines to focus on goals-based planning with clients.
Wirehouses like Morgan Stanley use the grid to push and pull advisers' behavior and influence what they eventually sell to clients.
Tucked near the bottom of a July 30 memo from Vince Lumia, head of field operations, announcing the changes is a warning for advisers who work with accounts of $100,000 to $250,000 — smaller households that large firms like Morgan Stanley have increasingly discouraged brokers from pursuing. Big firms want reps chasing bigger, more profitable households and clients.
Morgan Stanley clients with accounts of $250,000 are likely to have two to three times that amount of assets at other financial institutions or retirement accounts, so the new comp plan is clearly rewarding advisers who chase that money. Merrill Lynch last year
released a new compensation plan designed to bring in new clients and recently said the new plan was paying off, so it's little wonder that Morgan Stanley is taking a similar route.
For clients with between $100,000 and $250,000 in assets "who do not receive the enhanced service, advisers will receive a reduced payout of 25%," according to the memo.
It turns out that some Morgan Stanley brokers and advisers, particularly those who have hung on to clients with smaller accounts, are afraid they will see a hit next year in their pay.
One adviser, who asked not to be named, estimated he would lose more than $15,000 in net compensation under the new plan unless he got on board with the changes.
To not lose that pay, he needed to complete goals-based plans with clients, and also move clients with less than $250,000 to managed accounts, if they aren't already invested in one, he said. "It's really more stick than carrot," the adviser said.
"There's two things about the new plan; one is a plus and one is a minus," said another Morgan Stanley rep, who also asked to remain anonymous. "If you are an adviser with a lot of accounts under $250,000 and you aren't receptive to the new stuff, you are going to get hammered.
"But if you have a lot of larger accounts and embrace working online, you're gonna get a bump up," the second adviser said. "In theory, guys are going to make more money or get slaughtered on $100,000 to $250,000 accounts if they don't play ball."
It's important to note that such accounts are a minor part of a typical Morgan Stanley adviser's book of business. And other large brokerage firms pay advisers nothing for small accounts.
A Morgan Stanley spokesperson declined to comment.
It's been no secret that Morgan Stanley has been talking up its tech for financial advisers for some time. During a
presentation in May, Andy Saperstein, the firm's co-head of wealth management, stressed that a new financial planning program called the goals planning system was a way for the firm's brokers and advisers to gain a bigger share of clients' assets.
Morgan Stanley is betting its brokers and financial advisers will use the new, integrated wealth management platform to grab some of the roughly $2 trillion in assets its clients currently hold outside the firm.
"We are executing on our commitment to deliver industry-leading technology," wrote Mr. Lumia in his memo. "Our goal now is to drive adoption of this technology, and our compensation plan provides incentives to do so."
According to an industry source, Morgan Stanley's new pay plan has a handful of different enhancements that could increase an adviser's pay.
They include a 1% grid increase for clients with a financial plan, and a 1% to 2% grid increase to clients with new assets. Morgan Stanley advisers will also get paid more for loans and client deposits.
"The problem with that is some advisers hate doing lending and deposits," said the source, who also asked not to be named.
Will Morgan Stanley's advisers embrace the move to technology and planning? The firm, which has greatly reduced its emphasis on recruiting, is clearly trying to incentivize the behavior of their brokers and advisers to focus on financial planning and lending.
Most brokers and advisers, however, just want their firms to leave them alone so they can work with clients in the way they have established over years and decades. Will Morgan Stanley's new comp plan prod the behavior of advisers and lead to more growth, for both them and the firm, or will it fizzle?
