Morgan Stanley’s 2014 compensation plan takes a carrot and stick approach to incentivizing its advisors to grow their business.

Announced to its approximately 16,500 advisors this week, the plan includes an increase in the production hurdles on its cash grid, but also sweetens some bonuses for bringing in new assets and providing clients with loans.


Grid Modification. In the first amendment to its cash grid since it was updated 2010 following the Smith Barney acquisition, Morgan Stanley is raising revenue bands by 10% for advisors bringing in under $2.5 million. A $1 million producer, for example, would now have to make $1.1 million to attain the same 44% payout.  A $1.5 million producer who falls in the middle of the bracket would continue to receive the same 44% payout.

Investment Services Fee. Advisors will be charged an ‘investment services fee’ of 5 basis points, or 0.05%, on assets held in fee-based accounts. The fee will apply to new money as of 2014.

For example, a portfolio manager who has a $1 million account and charges a 1% fee for managing that money will be granted $9,500 in production rather than the full $10,000 that would go toward the cash grid.

The fee applies to a maximum of $30 million in assets, which means the full amount of revenue that could be scraped off an advisors’ production is $15,000.

“In a way that’s another cut, but you’re not going to bleed to death by that one cut,” Danny Sarch, president of career consulting firm Leitner Sarch Consultants, said. “If they’re a guy making $400,000 a year, is $15,000 enough to make you go running and screaming and calling Sarch? No.”


Growth Award. Last year, the top 40% of advisors in terms of overall growth who also had positive net new assets were eligible to receive the firm’s growth award. As of next year, the firm will also open that award up to advisors who have $300,000 in year-over-year revenue growth. Advisors can earn up to 5% of total revenues through revenue growth and also receive additional incentives based on lending and net new assets. The bonus is paid out as an upfront note that amortizes over five years. 

Small households. Morgan Stanley is altering its small households policy due to demand from brokers who see growth opportunities for accounts that may have under $100,000 to invest at the firm. Currently, advisors are not paid commissions on those accounts and only receive a 20% payout on managed accounts under $100,000.

In the new year, however, all revenue from those accounts will go toward the advisors’ cash grid provided they can bring at least $250,000 of the clients’ assets onto the firm’s OneView platform. OneView allows the advisor and client to review all their holdings, including those outside of Morgan Stanley.

Lending Award. Morgan Stanley has increased the maximum bonus on loans from $127,500 to $202,500.

Other firms have made similar tweaks to their grid and bonuses this year as they look to capture more growth. UBS announced that it had increased production hurdles for advisors in the lower bands of production. Merrill Lynch introduced new bonuses for advisors working in teams.

A spokesperson for Morgan Stanley said that advisors at the firm were still digesting how the changes would affect their business.