Morgan Stanley Tightens Pay Policy on Inherited Accounts
Brokers at Morgan Stanley Wealth Management who inherit accounts of former colleagues now have to work harder to be paid for them.
The New York brokerage giant, like its rivals, has typically given brokers full production credit for accounts assigned to them when a fellow broker leaves for another firm. Under a new policy, the firm is giving full credit for such accounts only if they succeed in retaining 50% of an inherited household’s assets after the first three months.
Brokers who miss the hurdle do not receive any retroactive compensation for the initial three-month period and are credited going forward for actual account totals.
The new “Supplemental Inherited Account Compensation” policy was formally adopted in April as an amendment to Morgan Stanley’s 2016 compensation plan, but few of the firm’s 16,000 “financial advisors” noticed, several said, speaking on condition of anonymity. One advisor said he noticed the policy change only after he questioned compensation support staff about why his grid payout percentage and payout itself were lower than expected in the months following inheritance.
“That somehow did not make any of the 2,000 management emails or daily updates we receive touting our intellectual capital,” said a broker at a southwestern branch. “We had a team leave two months ago so this was discovered after advisors saw an increase in production from their inherited accounts, but no change in paycheck.”
While apparently unique among major brokerage firms, the new policy is consistent with the death-by-a-thousands cuts strategy that large and small firms have been adopting in an era of falling fees and heightened regulatory scrutiny that has eroded profits and lifted expenses, according to headhunters and consultants.
Some advisors at Morgan Stanley and other firms said they agree with the philosophy since advisors do not deserve to be credited for assets they cannot keep.
Morgan Stanley, for its part, has found an effective cost-savings lever since advisors who leave typically move well over 50% of customer assets with them to their new employer, according to industry statistics. The stickiest inherited assets are generally those that involve proprietary products that a broker’s new firm does not sell.
The new policy is also a sign that battles among brokers to inherit accounts and that inspired accusations in lawsuits of nepotism and favoritism by branch managers against women and minority-group brokers have dissipated.
Nevertheless, brokers said that once a colleague jumps they and branch managers put in long hours trying to retain accounts, making the stealth-like change in inherited-account payout more frustrating.
“Funny how management does the, ‘oh yeah, by the way’ response [now]…when they asked you to work all weekend to retain these accounts,” the broker in the Southwest said.
Many firms delay giving brokers full payout on accounts inherited from senior brokers who retire through formal sunsetting programs, but Morgan Stanley appears to be the first to modify credit for accounts inherited from brokers who jump, said Andy Tasnady, a compensation consultant.
He also expressed some surprise at the need to wield a stick since brokers work hard when such leads are handed to them.
“I can’t imagine someone not calling a million-dollar account,” Tasnady said. “You’d think they do all they can to try to keep it.”