Advisors Fret Over Expense Account Benefits in Social-Distance Era

Social distancing has created an expense reimbursement challenge for some brokers who fear they will not do enough traveling and entertaining this year to reclaim money deducted from their compensation as a tax benefit.

At the start of each year, eligible brokers allocate a fixed amount of money to be deducted from their paychecks as a tax benefit with the understanding that the amount will be added to their expense account allowance. Under IRS Code section 162, however, the expenses must occur in the same year as the deduction.

“There are some things you can still spend on,” said a Wells Fargo Advisors branch manager on the East Coast, who was not authorized to speak for attribution. “But if you thought you were going to squirrel away $30,000 to take all of your clients to a Van Halen concert, you’re likely going to end up losing $30,000.” 

A Wells Fargo spokeswoman declined to say how many of the firm’s approximately 12,000 employee channel advisors accepted the 2020 expense benefit before the coronavirus lockdown became a reality.

“We are aware of the expense account situation and are working on options, while being mindful of IRS regulations,” said Shea Leordeanu, a spokeswoman at Wells Fargo Advisors, which has more than 12,000 employee-channel brokers.  

She declined to elaborate on potential solutions or accommodations the firm can make. 

Brokerage firms have made other crisis accommodations, ranging from zero-interest cash advances to advisors at Edward Jones to delaying plans to raise breakpoints on payout structures at Morgan Stanley and UBS. But tax law implications of expense-account tweaking are more challenging.

UBS Wealth Management USA encouraged its approximately 6,000 brokers in early April to give one-time bonuses to support staff to help them with childcare or other personal expenses, but specifically said the money was not reclaimable as an expense account item.

The brokerage unit of the giant Swiss bank has told managers it  is exploring adjustments to its “Business Builder” program, offered as a benefit for brokers in its “recognition clubs,” according to one insider, but has not yet announced any alternatives.

A UBS spokeswoman declined to comment. 

A spokeswoman at Morgan Stanley declined to comment on whether the firm is considering adjustments to its production-related expense benefit plan, called the Alternative Flexible Grid (AFG). A Merrill Lynch spokesman did not respond to requests for comment about whether it is reviewing its Business Development Account (BDA) program in light of the pandemic. 

Brokers, meanwhile, are searching for innovative ways to make reimbursement claims without running afoul of firm and regulatory requirements. One Morgan Stanley broker in the Southwest said he used portions of his allowance to purchase equipment for his office and knows of colleagues who have meals delivered to clients on days when remote account-review meetings are scheduled.

Firms and regulators, however, have imposed severe sanctions on brokers and client associates who are accused of participating in falsifying claims, and have been increasingly sensitive to  filings as use-or-lose, end-of-year deadlines approach.

Morgan Stanley fired a broker over a $300 claim that it said represented a dinner with his daughter. Merrill Lynch dismissed a million-dollar producer who allegedly submitted a BDA request for reimbursement on a computer he had returned.  

The guidelines for expense account reimbursements also are complex, and have tripped up both firms and brokers. Merrill in 2018 required all brokers to enroll in an online review course after finding that 66% of BDA claims had errors, intentional or otherwise. 

Morgan Stanley in April 2019 agreed to pay advisors $10.2 million to settle a class-action claim that its refusal to cover staffing expenses under its AFG violated California employment law.