Morgan Stanley is moving to defer slightly more compensation for its advisors in 2015, experts say, but just how financial advisors will react to the shift is debatable.
With the changes, Morgan Stanley’s 16,162 advisors could see 1.5% to 15.5% of their total bonuses paid in cash and stock deferred in 2015 as part of the wirehouse’s unified pay grid. This shift entails an average shift of about two percentage points in deferred comp next year vs. this year, according to the company.
Morgan Stanley’s move seems aimed at retaining advisors, simplifying the firm’s compensation plans and even saving it some money, industry observers say.
“What I know overall is that this is a very modest change to a bonus,” explained recruiter Mindy Diamond of Diamond Associates in Chester, New Jersey, in an interview.
“It was done to make the pay grid easier to understand, and more firms will do the same,” said Diamond, who does recruiting work on behalf of Morgan Stanley. “Regulators are pushing for more deferred compensation,” as it may be seen as being better aligned with client interests than cash payments.
While she sees the shift as “largely a non-event,” others paint a different picture.
“It’s a big company, so even a modest change can add up,” said compensation consultant Andy Tasnady of Tasnady Associates in Port Washington, New York, in an interview. “If you’re doing $10 billion in sales, a 1% shift from cash to deferred compensation is $100 million. That has a profit-and-loss benefit.”
Of course, that means less money in an advisor’s pocket come January 2016. “I hope a large number of advisors don’t have that much more deferred compensation than cash, because advisors are not happy if they see cash taken away,” Tasnady said.
As an example, a rep with fees and commissions of $1.1 million and who has been with Morgan Stanley for 10 years probably has about a 48% payout, or $528,000, according to The Wall Street Journal. Some 8.3% of that, or $44,000, would be deferred. In 2016, 10%, or $52,800, could be deferred.
“There could be segments where [the deferral] is more than the advisors would like,” he explained, especially younger reps who have lower length-of-service bonuses.
The amount to be deferred is likely to vary widely across Morgan Stanley’s advisor force, experts say.
“If you’re getting around $40,000 a month in cash and now you only get $38,000, that is still a lot of money, but it’s a change” an advisor might feel, said Tasnady. “Likewise, if you’re going from $20,000 to $19,000 a month, that big change is notable, too. No one wants to go down in monthly pay.”