Morgan Stanley dropped back-end awards from its recruiting deals in response to new regulatory guidance on the fiduciary rule, according to multiple sources.

The firm will only offer upfront, or so-called front-end awards, to compensate new hires, four sources say. Morgan Stanley managers were told Thursday afternoon that the policy was effective immediately. The wirehouse will still recruit going forward, but bonuses will be comprised only of front-end awards.

It was not clear how the payout would be structured going forward.

It's also unknown if the firm's decision, made within hours of the Department of Labor issuing its latest guidance on the rule, will be a trend setter for the business.

More than a dozen firms – wirehouse, regionals and IBDs – were not available for comment on Thursday afternoon. Two industry insiders, who declined to be named because of the sensivity of the matter, report that firms pulled offers on Thursday for advisers joining on Friday.

A recruiter, who asked not to be named, anticipates that other firms may follow Morgan's lead in cutting back-end recruiting awards in order to comply with the fiduciary rule.

Quote
"Now, I'd be much less likely to make a move," a wirehouse adviser says.
(Bloomberg News)
(Bloomberg News)

The changes suggest that the days of big recruiting payouts – which can add up to perhaps 400% of an adviser's production – may have ended, according to several people who work in the industry.

"Today, that changed forever," says a wirehouse adviser, who generates more than $2 million in production and who previously moved among the big brokerages prior to this announcement.

This adviser counted himself lucky for having moved before the rule landed. And he noted that because of the way that existing recruiting deals are structured, many advisers may be less likely to make a move, knowing that they can't earn enough up front to pay off foregivable loans at their previous employer.

"Now, I'd be much less likely to make a move," this adviser says.

Register or login for access to this item and much more

All On Wall Street content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access