Ex-Morgan Stanley Broker Sues over Forfeited Deferred Comp

A former Morgan Stanley Wealth Management broker in Boca Raton, Florida, has filed a putative class action alleging that the wirehouse illegally withheld deferred compensation from brokers who left to join other firms.

Matthew T. Shafer, who worked at Morgan Stanley for nine years, claimed that the wirehouse’s “cancellation” of his deferred compensation when he moved to a competitor in 2018 violated the Employee Retirement Income Security Act of 1974, according to a complaint filed December 30 in U.S. District Court in the Southern District of New York.

The broker is seeking class action certification and recovery of funds on behalf of “thousands” of former advisors who also had their deferred compensation withheld, according to the claim. Shafer, who allegedly left behind $500,000 in back pay, also alleges breach of fiduciary duty by Morgan Stanley’s compensation committee and seeks an injunction suspending the “cancellation rule.”

The claim follows a similar class action lawsuit brought in 2017 against Wells Fargo Advisors that settled in February for $79 million of the $265 million sought and was brought by the same three plaintiffs’ firms: Izard, Kindall & Raabe, Motley Rice and Ajamie LLP.

“I hope that Morgan Stanley will engage with us and do the right thing for its advisors,” said plaintiff’s lawyer Thomas R. Ajamie.

A spokeswoman for Morgan Stanley declined to comment.

Morgan Stanley automatically defers between 1.5% and 15% of its more than 15,000 brokers’ annual payout, according to an excerpt of its 2018 compensation plan included in the complaint. The firm allocates 75% of brokers’ deferred compensation to cash, which vests in six years and 25% company stock vesting in four years.

Brokers who leave due to a disability or layoff, or to join the government or to retire are allowed to retain their deferred compensation.

Like the Wells Fargo claim, the Morgan Stanley suit alleges that the deferred compensation programs qualify as an “employee benefit pension plan” under ERISA rules and are subject to its anti-forfeiture provisions.

The case apparently seeks to preempt the kind of defense raised by Wells Fargo in the earlier suit, the argument that the deferred compensation program does not qualify as a bonus or a “top hat” exemption affecting a “select group of management or highly compensated employees.”

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, Shafer’s lawyers argued.

“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,” they wrote in the complaint.

Shafer, who moved to Raymond James & Associates in Boca Raton in 2018, declined to comment. The complaint was filed in New York rather than Florida as required under the terms of the broker’s employment agreements.

The broker, 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 said when he moved.

(Updated with comment from plaintiff’s lawyer in fifth paragraph.)