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January 23, 2013 at 07:00 PM
After getting feedback from top advisors, Morgan Stanley said in December that it will share a new stock-ownership plan with reps in 2013. “What is most different [with the latest compensation plan] is that we are giving financial advisors the chance to buy Morgan Stanley stock at a discount in 2013,” said a company official. “This ownership opportunity was highly requested by our most successful advisors and management, who saw these programs in place at legacy firms and wanted it.”
The plan, which is being referred to as a “capital accumulation” program, is available to those advisors and branch managers who have been with Morgan Stanley for at least five years and who have $400,000 or more in fees and commissions in 2012. The firm has close to 17,000 reps and is led by James Gorman.
Advisors able to “meet these hurdles,” can invest up to 25% of pre-tax earnings or $150,000. For every 100 shares purchased, they will receive 20 extra or bonus shares. Those in the firm’s Chairman’s Club need only have been with the wirehouse for three years and can invest up to 25% of pre-tax earnings or $250,000. They will get 25 bonus shares for every 100 purchased. The shares vest immediately and will be distributed on April 15, 2016.
“This is an indication of how much we value advisors,” explained the company official. “While it’s true that lots of firms have deferred compensation, this is at most a three-year vesting program. It’s very aggressive and speedy.”
Experts say the new comp plan may also help Morgan Stanley retain more advisors. In the third quarter, it had 16,829 advisors, down 1% from 16,934 in the second quarter and 5% from 17,661 a year ago.
“The timing of these award programs couldn’t be better for Morgan Stanley,” said Mark Elzweig, a New York-based executive-search consultant, in an interview. “They need to introduce some credible programs to stem broker defections and to prevent their headcount from dropping further.”
The upfront portion of retention awards that advisors received in January 2010 amortize on a nine-year schedule, Elzweig points out, which is considerably longer than the three-year time frame of the new capital accumulation program.
Growth Awards
Morgan Stanley also says it will award bonuses to those FAs with positive growth in net new assets in 2013 and in the top 40% revenue growth category. The wirehouse, which adds that this is the “most lucrative [bonus award]ever offered by the firm,” is structuring the bonus as an upfront load to be paid in full in early 2014 and forgiven over five years.
The growth premium ranges from 2% to 5% of grid revenue with no maximum. For those with net acquired assets of at least $5 million, an award of 5 to 20 basis points of up to $157,500 will be paid. A banking/lending bonus of 35 to 50 basis points is also available for growth in loan balances up to $127,500.
The bonus for total revenue in 2013 will be cut by 2% to cover other adjustments. In 2013, Morgan Stanley will award bonuses ranging from 0.5% to 4.5% on fees and commissions of $750,000 to $5 million.
The company will continue to treat accounts for households with under $100,000 differently than other accounts. But it has not raised this asset minimum, unlike some rivals, a company official said.
The grid rate range of 10% to 20% on managed-account assets held by these households remains in effect. Plus, there is no payout on transactional business tied to these accounts. (Reps will get gross revenue credit for clubs and grid thresholds for such transactions.)
In terms of revenue for non-U.S. residents, Morgan Stanley will cut the grid rate by 10% in 2013 for reps with less than $100,000 in revenue with these clients in 2012.
“We remain with one of richest deferred comp plans on the Street, even with a 2% reduction,” a company source noted.
The new stock compensation policies should be particularly attractive to the former Smith Barney reps within Morgan Stanley, Elzweig shares. “The old Smith Barney plan, which allowed brokers to accumulate Smith Barney stock at a discount, was very popular,” he said. “Smith Barney worked hard to ensure that most of its top producers were in this plan, and branch managers were charged with selling it to their brokers.”
Still, rivals are expected to respond to Morgan Stanley’s latest compensation moves. “The other wirehouses aren’t going to just sit there and watch their retention awards expire either,” Elzweig added. “We expect that they’ll be introducing their own [new] retention programs, as well.”
Merrill Packages
Bank of America-Merrill Lynch compensation packages for 2013 are a mixed bag for advisors, compensation experts say. On the plus side, retiring advisors can potentially receive between 100% and 160% of their trailing-12-month production over a four-year period, which is up from 70% to 80%. Also, the pay grid stays the same.
However, a new emphasis on flows of certain types of asset flows—namely fee-based assets rather than overall net new money—is not likely to make all of the 17,000-plus Thundering Herd happy. “There is a revision to the bonus plan that could make it actually harder to earn the initial amounts,” said compensation consultant Andy Tasnady, in an interview. “Not all assets count, namely non-fee based assets like cash, bonds and equities that are not in certain wrap arrangements.”
The number of BofA-Merrill financial advisors stood at 17,533 as of Sept. 30, which is down one from the second quarter but up 439 reps from a year ago. These figures include about 1,460 FAs in the mass-affluent Merrill Edge platform and BofA’s Consumer & Business Banking segment.
