Morgan Stanley will add new incentives to its compensation plan in order to juice advisors' growth and accelerate adoption of new digital tools.
The firm gave its more than 15,000 advisors details of the company's 2019 compensation plan months earlier than normal in an effort to prep them for the forthcoming changes, according to a company memo seen by On Wall Street.
"We encourage you to spend time over the summer and fall thinking about your practice, the resources you need to provide your clients with all the Firm has to offer and how you can take maximum advantage of the 2019 plan," Vince Lumia, head of field management at Morgan Stanley, wrote in the memo.
The changes will become effective on April 1, 2019.
Although the wirehouses have typically unveiled the coming year's compensation plan in November or December, there is precedent for breaking with tradition. UBS rolled out its 2017 and 2018 compensation plans about six months early.
Lumia emphasized that Morgan Stanley's digital investments played a role in its decision to unveil compensation details early. Over the past year or so, the company has deployed both in-house and third party technologies such as Morgan Stanley's algorithm-driven Next Best Action and BlackRock's Aladdin.
"[O]ur investment in you is not just technology and operations. It is also about recognizing the additional time and effort it will take to incorporate the new capabilities into your practices to benefit your clients," Lumia said.
The firm's core compensation grid remains untouched, according to the memo.
"There is some good stuff in here but it will depend on the advisor. A lot of it is very targeted because it is at a client level," says Andy Tasnady, a compensation consultant.
Among the new changes, advisors will be able to increase their credit rate by up to three percentage points for increased financial planning and net acquired assets (credit rates are based on an advisor's revenue and length of service with Morgan Stanley). Payouts for the firm's lending growth award have almost doubled; the award is calculated based on an advisor's year-over-year lending balance growth multiplied by a payout rate ranging from 50 to 100 basis points.
Morgan Stanley is also upping incentives for advisors to get clients to use the firm's banking services. Brokers can earn 15 basis points of gross revenue credit on average monthly cash balance funds for clients that are using banking services such as Morgan Stanley's cash management service and direct deposit setup. For clients that don't use such services, advisors earn 5 basis points on cash balances.
These types of banking services, often targeted at wealthy clients, have become a more important part of wirehouses' overall business mix in recent years.
On the other end of the wealth spectrum, Morgan Stanley will revise its small household policy. Advisors can earn a full payout, plus one percentage point, if they provide a goals-based planning with monitoring to clients with AUM between $100,000 and $250,000. Advisors will otherwise get a reduced payout of 25% for those clients.
"It'll increase the service levels as the companies become more fee-based," Tasnady says.
He adds that a major consideration on doing financial plans for clients is the time involved.
"I've worked with firms in the past about financial planning, and one of the questions has been how long does it take for the advisor? How long does it take for the client? Sometimes they don't want to answer a lot of questions. And, for smaller clients, advisors might not want to do it if the payout bump is not that much of an increase," Tasnady says.
The firm's new incentives mirror changes Merrill Lynch made last year to its compensation plan in order to spur brokers to bring in more assets. Early indications are that Merrill has had some success.
More details for Morgan's comp changes will be forthcoming, according to the memo. For example, tracking screens for 2019 metrics and policies will be available to advisors in the fourth quarter of this year.
"We are intentionally releasing the details of the plan earlier than we ever have in the past because we want to give you enough time to make changes to your practices so you and your clients are able to achieve the maximum benefit," Lumia wrote in the memo.