EXCLUSIVE: Morgan Stanley to Raise Payout Grid Hurdles for 2017
(Updates to include comments from consultant in the fourth and fifth paragraphs.)
Morgan Stanley plans to raise by 10% the revenue that brokers must produce in 2017 to qualify for higher payout percentages, according to several well-placed sources who were briefed on the not-yet released compensation plan.
The so-called grid that determines the payouts will continue to have 16 breakpoints with percentages ranging from 28% of fees and commissions at the low end to a peak of 55.5%, they said.
While the changes will affect only those brokers hovering near grid breakpoints, the efficiencies for Morgan Stanley can be substantial. The largest U.S. broker-dealer, as measured by its almost 16,000 brokers, spent 57% of its $15.1 billion of wealth management revenue on compensation in 2015. It aims to reduce that comp ratio to below 56% in 2017, according to a presentation from Chairman and Chief Executive James Gorman in January.
The last time Morgan Stanley moved the goalposts was in 2014 when it raised breakpoints by 10% for those producing under $2.5 million, according to Andy Tasnady, head of compensation consulting firm Tasnady & Associates.
“There’s no upside for the FA,” Tasnady said. “At best you can stay even or you’re losing.”
Brokers seeking to jump from the lowest payout level of 28% to the next level of 32% will have to produce $242,000 in 2017, up from $220,000 currently. They similarly will have to generate $3.3 million, rather than $3 million, to qualify for the second-highest payout levels of 49-53%.
The firm’s revenue target of $5 million to qualify for the highest grid level will remain unchanged, with payouts ranging from 51.5% to 55.5% depending on length of service with Morgan Stanley.
The company also will not change the so-called penalty box, which pays a flat 25% of revenue produced to brokers with nine years of experience or more who produce less than $300,000 a year.
Details of the grid stretch and other compensation policies for 2017 are expected to be disclosed to Morgan Stanley’s brokerage force on Monday. UBS told its almost 7,000 brokers in the Americas in June that it will not change the 13 breakpoint hurdles on its grid next year but is raising payout percentages for brokers producing $1 million or higher.
Morgan Stanley, which did not change its grid in 2016, will continue to incentivize brokers to sell banking products to customers in 2017. The new comp plan will retain and expand bonuses for increasing sales of securities-based loans and mortgages and for growing the number of Premier Cash Management clients who use a combination of traditional banking services such as direct deposit, electronic bill pay, checking accounts and credit cards.
In an attempt to offset more volatile revenue from the company’s trading and investment banking divisions, Gorman has emphasized increased sales of interest-producing banking products within wealth management. The percentage of Morgan Stanley’s wealth management clients with loans from the firm grew to 15% at the end of the third quarter of 2015 from 9% at the end of 2013, according to Gorman’s presentation earlier this year.
The push comes in spite of charges from Massachusetts that Morgan Stanley has used illegal sales contests to generate portfolio-backed line of credit sales, a charge the firm has denied.