The official said the new compensation model was introduced in response to requests from a number of advisors at the firm, which has approximately 17,000 total advisors.
“There were versions of a capital accumulation program at legacy firms, and there wasn’t one in existence here,” the source said. “They wanted that to be brought back.”
Two categories of advisors are eligible to participate in the program: those who have a length of service of five years and gross revenue of $400,000 can invest the lower 25% of their pretax earnings or $150,000 and 20% of shares purchased as a bonus (i.e. 20 bonus shares for every 100 purchased). The second group, the Chairman’s Club, requires length of service of three years. Advisors in this segment can invest the lower 25% of earnings or $250,000 and receive 25% bonus shares.
For both groups, the maximum holding period is three years. Basic shares vested immediately would be distributed April 15, 2016 and bonus shares vest and are distributed on the same date.
The program is not available to any other branch at Morgan Stanley.
“For people who wanted to make a career here and believe in the story, it enables them to buy in on very attractive terms,” the official said.
The firm has also increased its growth incentives. For advisors who have positive net new assets in 2013 in the top 40% of growth of revenue band will receive a structured five-year bonus agreement with 100% upfront loan in the first quarter of 2014.
There are five components to the new plan, including a growth premium, which ranges from 2% to 5% of grid revenue with no maximum, a net acquired asset bonus of five to 20 basis points (max $157,500) for new acquired assets of at least $5 million, a banking/lending bonus of 35 to 50 basis points on growth in loan balances (maximum payment of $127,000), a 25% “kicker” to the advisors’ expense account and $2,000 to reward the client service associate for their contributions.
To help pay for the growth incentives, Morgan Stanley has reduced its revenue bonus by two percentage points, according to the official. Bonuses now range from 0.5% to 4.5% on revenues ranging from $750,000 to $5 million.
The firm has left its definition of small households unchanged at $100,000 but will not offer a payout on transactional business. This year, the firm offered a 10% to 20% payout for transaction businesses with small houses.
Morgan Stanley also plans to reduce grid rate payouts by 10% for advisors who do less than $100,000 in revenue with non-resident clients outside of the United States given “the higher cost/risk of business with clients who reside outside the US,” the firm said.
All other grid rates will remain the same.
