What Does Morgan’s New Comp Model Mean for the Industry?

With the introduction of Morgan Stanley’s new compensation plan, 2013 is shaping up to be another cutthroat year as wirehouse and regional firms look to lure top advisor talent.

Morgan announced Thursday a number of changes to its compensation plan, including long-term bonuses for growing assets and a capital accumulation program to allow advisors to buy company stock at a discount. While the plan also included a cut in revenue bonuses and transaction revenues, the overall package remained attractive even as many advisors worried Morgan might cut back to try and meet its announced target of 20% profit margins.

“I didn’t expect this to be a positive,” Ron Edde, a career consultant for Millennium Career Advisors who is working with some teams considering a move from Morgan Stanley, said. “I thought they were going to come in a change in ways to help toward the 20% goal. I don’t see this markedly moving company toward that goal, and that’s certainly a positive thing for advisors.”

A number of advisors were pleased to learn Morgan had left some key items intact, such as the minimum account size of $100,000, which has risen at a number of competitor firms, and felt that the firm had listened to advisor requests, according to Edde. The additional $2,000 bonus for advisors to give to their client service associate was also a nice benefit, according to Jack V. Nasi, a career consultant and founder of JVN Global.

“A couple expressed positive comments on Morgan Stanley,” Edde said, adding that some of the teams he spoke to about the move said that it showed the firm was listening to its field leaders.

According to a Morgan official familiar with the 2013 plan, the final outline drew support from branch managers and an advisory council with whom the firm had consulted in order to decide on a competitive plan. “They were very positive about it,” the official noted.

The plan comes on the heels of a slight dip in the firm’s headcount of approximately 17,000 advisors with Morgan Stanley Wealth Management reporting a loss of 159 advisors in the second quarter of this year and 704 since the second quarter of 2011. Wirehouses on the whole are losing advisors, according to an October report by Cerulli which reported that firms like Morgan, Wells Fargo, UBS and Bank of America Merrill Lynch could cede up to 7% of market share over the next three years as advisors leave for smaller firms. Recruiters were divided as to how much the plan would alter those numbers in the coming year.

 “Firms use payouts to [incentivize] performance, drive certain behaviors, and to tie Advisers to golden handcuffs, making it painful to leave,” Danny Sarch, president of a career consulting firm Leitner Sarch Consultants, said. “Morgan Stanley's new payout tweaks do all those things.”

The stock options have a three year vestment and the growth award is attached to a five-year bonus agreement with a 100% upfront loan in the first quarter of 2014, which could make it harder to leave, according to Nasi. The increased bank-lending bonuses, which are offered at a number of competitor firms, will also help deepen client relationships and deepen connections within the bank, making it harder to transition, he added.

“From the first conversation to the start date, it’s a long process always obstacles and issues come up and this will be another thing that will come up that you’ll have to iron out,” Nasi said.

That may not be enough, however, Sarch said.

“It works when the stocks goes up, and backfires when it goes down,” he said. “All the grids are similar and since firms tinker with them every year, making a recruiting decision based on the grids is a waste of time.”

The teams that Edde is working with who are looking to leave from Morgan Stanley will likely stay on the market, he said.

“Anybody who’s leaving right now is not going to jump on that [compensation package],” he said.

According to an official with Morgan Stanley, retention is always a priority at the firm, but was not the logic behind the long-term nature of some of the benefits. The moves were prompted more by the requests that the firm had received from advisors who were looking for buy-in programs similar to what they had at legacy firms such as Smith Barney, the source said.

“It’s basically at most a three year vesting program so I would say it’s very aggressive in terms of the speed which this vests,” the official explained. “If our primary purpose was to lock people in we’d make a longer vesting period. Obviously we want people to stay.”