Morgan Stanley Smith Barney will not link advisor compensation to the types of products they sell.

Previously Morgan Stanley advisors were compensated differently according to the types of products they sold.

Tier I products generated a higher payout and included investments such as mutual funds, variable annuities, universal life insurance, bank deposits, alternatives and managed futures.

Tier II products had a lower payout and included equities, fixed income, fixed annuities, term, disability and long-term care insurance, options, futures and foreign exchange.

Meanwhile, Smith Barney’s compensation, on the other hand, was not based on the types of products sold.

Now—with the merging of Morgan Stanley and Smith Barney into a single joint venture—all MSSB advisors will receive the same payout no matter what products they sell.

Scott Smith, an associate director at Boston-based Cerulli & Associates sees the move partly as a reaction to the recent regulatory efforts to bring all advisors under a fiduciary standard of care. “An independence of products is a step towards a fiduciary environment,” he says. “It may be more profitable for the firm for their advisors to sell one product over another, but they have to move away from those conflicts of interest.”

Andy Tasnady, president of Tasnady & Associates, a New York-based consulting firm specializing in compensation issues, says differentiating payouts based on products has become less relevant as firms have moved away from proprietary products to open architecture. “Now firms get negative attention if they’re perceived to be overly pushing their own products,” he says.

Last year, Merrill Lynch scrapped its differentiated payout based on ticket size and products sold, and moved to a simplified grid. UBS was the only other wirehouse to differentiate payout based on products sold in 2009. It’s unclear whether the UBS will change its grid this year, and the firm did not return calls for comment by press time.

Morgan Stanley advisors will also see a boost in the highest payout category from $3 million-plus, trailing-12 production to $5 million-plus. Smith Barney previously had the $5 million-plus category with a payout rate of 46%. Under the new MSSB grid the payout for this category will be slightly higher at 47%.

Tasnady says the expanded category and higher payout won’t have too much of an impact on the firm’s bottom line as so few advisors are $5 million producers. “But it’s a nice carrot to reach for…and they had to make sure their top producers didn’t get any cut in their payout,” he says.

A Morgan Stanley Smith Barney spokesperson declined to comment.

For more on advisor compensation see our upcoming March 2010 Compensation issue.