Morgan Stanley, Smith Barney Share Retention Program with FAs

The program "awards," discussed February 20, are being offered to about 6,500 of the 20,000 advisors in the joint venture as forgivable loans.

Morgan Stanley and Smith Barney gave details of their retention program to advisors late February 20. The program "awards" are being offered to about 6,500 of the 20,000 advisors in the joint venture as forgivable loans.

These veteran producers, who must have at least $500,000 in '08 sales, commissions and fees to be eligible for the program, represent about 80 percent of the combined venture's total revenue, according to two firms.

Top veteran producers with $1.75 in yearly sales can receive as much as $1.84 million through the program, while a producer bringing in $500,000 in yearly sales would get about $300,000.
And some newer producers (referred to as "Rising Stars") stand to gain from about $87,500 to nearly $225,000. News reports have estimated that the retention packages will total $2 billion to $3 billion.

The retention program will be paid to advisors in the form of nine-year "forgivable loans." Those advisors leaving either firm before the end of the nine-year period, will have to pay back the portion of the "loan" that has not yet matured or been amortized, a representative of Morgan Stanley explains.

For advisors who have been with either Morgan Stanley or Smith Barney for more than seven years, the program will distribute two "installments" as follows:

- Advisors with sales/commissions/fees - or gross dealer concessions (GDCs) - of $1.75 million in 2008 or higher will receive 75 percent of this amount in January 2010 and 30 percent, guaranteed, in January 2012.

- Advisors with GDCs of $1.0 million in 2008 or higher will receive 75 percent of this amount in January 2010 and 25 percent in January 2012, if they grow their GDCs 25 percent or more over the three-year period.

- Advisors with GDCs of $750,000-$999,999 million in 2008 or higher will receive 50 percent of this amount in January 2010 and 25 percent in January 2012, if they grow their GDCs 25 percent or more over the three-year period.

- Advisors with GDCs of $500,000-749,999 million in 2008 or higher will receive 30 percent of this amount in January 2010 and 30 percent in January 2012, if they grow their GDCs 25 percent or more over the three-year period.

For advisors hired as of December 31, 2006 and with between two and seven years with either Morgan Stanley or Smith Barney at the $250,000-$499,000 GDC level - so-called "Rising Stars" - the first installment will be made at 10 percent to 20 percent of 2008 GDC in January 2010; and the second installment of 25 percent of 2008 GDC will be made in January 2012, if this GDC grows 25 percent or more over the three-year period.

This program is only being extended to advisors. No senior executives, branch managers or administrative staff members are eligible, and the program is being paid from operations and not any government funds, according to Morgan Stanley.

James Gorman of Morgan Stanley, who is leading the joint venture, had promised advisors when the deal was first announced, January 14, that they would get details of the associated retention plan within 30 days.

A taped discussion held with advisors was posted online on February 11. During that call, Gorman recognized the fact that retention awards were important to "keep the team in place as we go through the integration."

He also said that the firms were being "generous" in basing the awards on the end of 2008 vs. the deal's expected legal closing, which should be mid-2009.

To avoid any blips in its public relations, Gorman urged advisors to refer to the retention program as "awards" and not bonuses. Citigroup/Smith Barney and Morgan Stanley have collectively received more than an estimated $60 billion in government bailout funds, news reports state.

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