Morgan Stanley has adjusted how it compensates wealth managers, to encourage brokers to increase revenue and allow them to buy discounted stock, media reports said.
The 2013 program pays a bonus of 2 to 5 percentage points of revenue for advisors who bring in new assets and are in the top 40 per cent in revenue growth, Bloomberg reported. That program comes at the expense of a 2 percentage-point reduction in the revenue bonus paid to all brokers who generate at least $750,000, it said.
Morgan Stanley declined to comment further when contacted by this publication today.
The news service reports said that Greg Fleming, president of Morgan Stanley’s wealth management business, wants to control costs but avoid defections and meet his target of a mid-teens pre-tax margin in 2013. Wealth management staff usually receive a higher portion of revenue than their colleagues in more trading-driven roles because brokerage is said to be less risky and involves less intensive use of capital.
Fleming was quoted from a recent conference call as saying: “There remains a lot of pressure from a recruiting standpoint. The existing system for compensation also works for shareholders.”
Morgan Stanley Wealth Management announced the 2013 compensation plan yesterday afternoon to its 17,000 brokers.
For the firm, it is a gamble that brokers will be willing to take a cut in a bonus, in exchange for potentially richer rewards for bringing in new business and acquiring shares in the firm at a cheaper price, Reuters reported. For brokers, it's also a bet that the company's stock price will rise in the next few years, since a portion of the shares must be held for three years.
Morgan Stanley chief executive James Gorman has pledged to investors that he will build out the wealth management business while also cutting $300 million in expenses from the unit. Wealth management makes up about 44 per cent of the firm's ongoing revenue, the news service said.
A Morgan Stanley official reportedly said the cut was made to cover the costs of new bonuses that are tied to the amount of net new assets and new loans the advisors bring in. New assets would come from bringing in new clients or having existing clients increase the amount of funds they place with the firm.