Morgan Stanley is emphasizing growth in its private bank operations, and its 2016 compensation plan for the firm’s 15,800-plus advisors reflects this strategy.
“We continue to make private banking services our top strategic priority in support of [our] holistic advice,” Greg Fleming, president of wealth management, said in a memo to advisors recently. “Highly competitive lending solutions have proven popular with clients, and for 2016 we will focus on extending our suite of services to bring clients new convenience and value in their day-to-day cash management.”
In the third quarter of 2015, client loans made through Morgan Stanley advisors totaled $61 billion, up 5% from the prior quarter and up 27% from last year. (In the same period, fee-based asset flows declined to $7.7 billion vs. $13.9 billion sequentially but rose from $6.5 billion a year earlier.)
To further boost loans and other banking business, the wealth unit is rolling out a new incentive award. Advisors can receive $5,000 to $50,000 a year for growth in clients who are “cash management engaged.”
To be eligible for this new bonus, advisors must have five new clients with an average daily cash balance of $50,000 or with $5,000 a month in direct deposits. In addition, they need to show aggregate growth in their total cash-deposit balances of $125,000 for 2016.
In addition, these clients must use two out of five bank payment mechanisms (which include debit cards, online bill payment, Morgan Stanley American Express Cards, check writing and ACH transfers). Clients must meet these standards for three consecutive months in 2016, and advisors must demonstrate that they are broadening their client relationships on the banking side. Advisors’ support staffers and associates can receive between $1,200 and $12,500 for their efforts to grow bank programs.
As for Morgan Stanley’s lending award, it remains unchanged from last year at the advisor level: A maximum of $202,500 will be received for those showing growth in securities-based lending, tailored lending and home mortgages. Support staffers, though, can earn as much as $10,000 for their support of lending activities, up from $2,000 in 2015.
The wirehouse, which is led by James Gorman, says it has made no changes to its payout grid, which ranges from 28% to 55.5% of compensable revenue. Deferred compensation remains the same in 2016 at 8.5% for the average producer.
The period of vesting of deferred cash has been shortened by two years, according to Fleming’s memo. In 2016, 75% of deferred compensation will be paid in cash; the vesting period, though, is reduced to six years from eight. The remainder, 25% of deferred compensation, is set to be paid in stock, which — as in 2015 — will vest in four years.
As of the third quarter of 2015, yearly fees and commissions per FA at Morgan Stanley are $922 million, a drop of 6% sequentially and 1% from the prior year. Average assets per FA are $122 million, down 5% from the earlier quarter and 2% from a year ago.
In October, Fleming’s role as head of both the wealth management and investment management units was trimmed down, with the firm reportedly asking him to focus on wealth operations. The advisor-led business brings in about 40% of Morgan Stanley sales; advisors have some $1.9 trillion in client assets.
“Our compensation of advisors is an integral part of how we support and position them to best serve clients,” Fleming said. “The 2016 plan incorporates a lot of advisor input and feedback and meets a number of critical objectives that were conveyed to us.”
Merrill Lynch has kept its pay grid pretty consistent since 2009. But in late 2015, the wirehouse unleashed a new grid for its 14,563 financial advisors.
The biggest change is a jump of $50,000 in the proposed payout grid ranges for fees and commissions of advisors with yearly production of less than $1.5 million. This should likely impact a number of advisors in the Thundering Herd — namely those producing at levels that are in the lower end of the 2015 grid ranges; in Q3’15, the average yearly production level for Merrill Lynch advisors was $1 million.
Advisors who had fees and commissions of about $400,000 to $600,000 and received cash payouts of 40% in 2015, for instance, will need to produce $450,000 to $650,000 in 2016 to maintain the same payout level. Thus, a $400,000 producing FA who couldn’t make the jump to $450,000 in production would make 5% less cash in 2016 — $152,000 vs. $160,000 in 2015.
Merrill’s 2016 grid includes cash payouts of 34% of production to those reps bringing in yearly fees and commissions of under $250,000; 35% for those producing between $250,000 and $350,000; 38% for the $350,000–$450,000 range; 40% for $450,000–$650,000; 41% for $650,000-$850,000, 42% for $850,000-$1.05 million, and 43% for $1.05 million-$1.5 million.
According to Merrill Lynch executives, who recently shared the compensation changes with FAs, higher production levels can be achieved by business growth tied to “deepening relationships” with clients, “bringing in new clients” and joining teams. More than 70% of Merrill FAs run their practices as part of a team.
To earn a strategic growth award, advisors need to boost their net client assets by 7% in 2016, down from 10% in 2015. However, the size of this award is being reduced next year: For advisers bringing in from $10 million to $50 million in new assets, for instance, the award is 0.15% of the amount brought in, compared with 0.20% last year.
Each advisor — rather than each team in ’15 — will need to make one referral to another part of Bank of America to avoid a 1% grid reduction, though the referral does not have to lead to an actual product sale, such as a loan.
As for long-term awards, these will be less tied to corporate stock next year, moving down to 25% of an award from 50%. Long-term awards range from 2.5% of production for advisors in the $350,000–$450,000 range of yearly fees and commissions to 5% for those in the $1.05 million–$1.50 million range.
“Our strategy remains the same—to build a consistent goals-based standard of care for all clients,” the company said in a statement. “We are well positioned ahead of client expectations, new competitive realities and regulatory requirements.”