Morgan Stanley Re-Engineers US Wealth Management Packages

Stephen Harris

6 November 2006

Morgan Stanley in the US is re-engineering its pay structure for brokers to improve compensation for higher producers with better customers at the expense of underperformers. Under the new arrangement, announced internally last week, commissions on fee-based and managed-money products, such as mutual funds and annuities, will rise to 39 per cent from 38 per cent for brokers who produce $300,000 to $349,999. For those bringing in $1 million or more the rate will rise to 43 per cent. Commissions for products sold on a per-transaction basis will rise to 36 per cent of gross revenue from 35 per cent for brokers producing at least $300,000. This will rise to 41 per cent for the top performers. "It allows substantial wealth creation over the course of their career. We chose to reward as many brokers as possible," said Andrew Saperstein, chief operating officer of national sales at Morgan Stanley's global wealth management unit, at a recent press briefing. But Morgan will no longer pay its brokers for business done with households that have less than $50,000 with the firm, raising the minimum from $35,000 previously. And commissions will be paid at reduced levels for households with assets of $50,000 to $75,000. According to Mr Saperstein most of Morgan Stanley's wealth management unit’s 8,000 advisors will benefit under the new arrangements. Morgan Stanley is also introducing a scheme for brokers with at least $300,000 in production to use as much as 25 per cent of their pre-tax income to buy shares in the company. Brokers will receive between 20 and 40 bonus shares for every 100 shares they purchase, based on their length of service with the firm. The purchased shares will vest within three years, and the bonus shares will vest over four years. According to commentators, the new arrangements have been designed to put pressure on low-producing financial advisors, as well as help retention and recruitment. Morgan Stanley has fired around 1,500 underperforming brokers and trainees in the last two years.