Ex-Morgan Stanley Broker Fights to Keep Deferred Comp Suit in Court
A former Morgan Stanley Florida broker who brought a proposed class action lawsuit targeting the wirehouse’s withholding of deferred compensation is fighting to keep his claims in Manhattan federal court, according to filings this month.
In a May 5 motion, Morgan Stanley’s lawyers argue that Shafer pledged in his employment agreement to settle through arbitration all disputes related to his “employment, compensation, and terms and conditions of employment.”
Shafer, who worked at Morgan Stanley for nine years in Boca Raton, Florida, and now is registered with Raymond James & Associates in the same city, filed an objection to the wirehouse’s request on the same day.
Arbitration would lead to “inconsistent” outcomes for ex-Morgan Stanley advisors if they had their claims heard individually, they argued in the brief. They also alleged that Morgan Stanley’s Compensation Incentive Plan agreements state explicitly that the “courts of New York shall have exclusive jurisdiction” of disputes arising in connection with it and participants and trump the employee agreements Morgan Stanley cites.
“One of the problems with sending participants like this to arbitration is that there’s a risk of inconsistent outcomes, depending on who the arbitrator is, and what evidence might be considered, or not considered by the arbitrator,” said Dona Szak at the Ajamie law firm in Houston, which represents Shafer, along with Izard, Kindall & Raabe and Motley Rice.
A Morgan Stanley spokeswoman declined to comment on the litigation.
The back-and-forth comes as Shafer’s lawyers have asked the court to allow them to bolster their case with additional plaintiffs to represent the “thousands” of potential class members.
On March 3, Shafer’s lawyers asked the court to include five additional former Morgan Stanley advisors: Sheri Haugabook, 25-year industry veteran who left the firm in 2018 and is registered with Raymond James; Peter Heidt, a 24-year veteran who left in 2020 and is registered with Ameriprise; Randall Powers, a 32-year veteran who left in 2016 and is registered with Stifel Financial; Mace Tamse, a 38-year veteran who left in 2015 and is registered with Ameriprise; and Jeffrey Shover, a 27-year veteran who left in 2018, briefly went to Raymond James, but left for Ameriprise following allegations he retained Morgan Stanley client information–all according to their respective BrokerCheck records.
At least five others have asked to also join the lawsuit as named plaintiffs, according to Szak.
The court has not yet ruled on Shafer’s request to add the named plaintiffs, or Morgan Stanley’s request to compel Shafer to arbitrate.
In his original complaint in U.S. District Court in the Southern District of New York on Dec. 3, 2020, Shafer claimed that Morgan Stanley’s “cancellation” of around $500,000 in deferred compensation when he moved to a competitor in 2018 violated the Employee Retirement Income Security Act of 1974.
Shafer said Morgan Stanley defers for six years as much as a 15% ratio of advisors’ compensation if they generate more than $5 million in trailing 12-month gross revenues, and as little as a 1.5% ratio of it if they generate under $240,000.
The complaint, which also alleges Morgan Stanley’s compensation committee breached its fiduciary duty, seeks an injunction suspending the deferred compensation’s “cancellation rule” as well as certification of the class action status.
Shafer’s lawsuit has been closely watched, as it comes a year after a $79 million settlement was reached in a similar class action lawsuit against Wells Fargo Advisors. The plaintiffs in that case, who were represented by the same law firms as Shafer, sought $265 million.
Prior to settling, Wells Fargo had argued that its deferred compensation plan qualified for an exemption from ERISA laws as a “top hat” plan available only to a “select group of management or highly compensated employees.”
Shafer’s lawsuit states that Morgan Stanley’s deferred plan affects a “significant percentage of the relevant workforce, which far exceeds the percentage allowed under ERISA” and is not limited to highly compensated advisors.
“All or almost all of them participate in the FA Deferred Compensation Program because participation is mandatory and begins with the first dollar of revenue generated,” Shafer’s complaint states.
Shafer started his career at UBS in 1997 and moved to Morgan Stanley by way of its Smith Barney predecessor in 2009. He was one of three brokers on a team managing $475 million in assets and generating $3 million in production, sources told AdvisorHub when he moved.