Morgan Stanley plans to increase the amount of deferred advisor compensation in 2015, even while it keeps the formula for determining that compensation unchanged, according to multiple sources.
Deferred comp will range from 1.5% to 15.5%, and depend on an advisors revenue and tenure, said sources with knowledge of the compensation. The deferred portion will be 75% in cash that vests over eight years and 25% in stock that vests over four years, the person said.
"A higher percentage will be deferred and nobody likes that," says Bill Willis, president of Willis Consulting, one of several recruiters who reacted to the news from Morgan.
A Morgan spokesman declined to comment.
The deferred comp increases come on the heels of Morgan's third quarterly earnings report, showing profits for its wealth management division were up 12% year-over-year, rising to $482 million for the quarter from $430 million for the same period a year ago. At the same time, the wirehouses advisor ranks shrank by 1%, falling to 16,162 for the quarter from 16,316 from the previous quarter. That figure was also down from the same period a year-ago, when advisor headcount stood at 16,517.
Revenue per advisor increased to $932,000, up from $908,000 for the previous quarter and $848,000 for the year-ago period.
Morgan adjusts its pay plan annually and is seeking to tie brokers to the New York-based firm as it relies on the unit to account for a larger share of profits. Compensation costs at the wealth-management division were 59% of revenue in the first nine months of 2014, and the bank has set a target of 55% or less for the future.
Individual deferral amounts are set by a formula. For example, a broker who has been at the firm for 10 years and produces $1.1 million in revenue would have 10% of pay deferred under the plan for 2015, up from 8.3% currently, the person said. Chief Executive James Gorman and other top executives have almost 90% of their pay deferred.
"It's a big change, and it's going to have a pretty major reaction," adds Willis, describing the fallout he anticipates within Morgan.
Recruiter Michael King, president of Michael King Associates in New York, describes the planned increases in deferred comp as "broker handcuffs," a tactic used to keep advisors from leaving for other firms, and one that was being used by competitors as well.
"It's in line with the other firms, there's nothing dramatically different," says King. "What they're trying to do is keep brokers in their seats, so brokers don't move."
With Bloomberg News.
- Executives Target Broker Comp
- Digital Expectations Are Changing for Millennials, Says Morgan's Greg Fleming
- What Are the Challenges Ahead for Wealth Management?