Morgan Stanley (MS) is facing brokers’ disapproval on its compensation deferrals plan that was revealed by the company in November last year. The brokerage firm, with more than 16,000 brokers, is looking to initiate a modest increase in its broker’s bonus deferrals starting this year.
The bank’s wealth management segment will slightly alter its compensation payment method, which will result in delayed partial payments to brokers and advisors. According to people familiar with the matter, the new deferral rate will fluctuate from 6% to 11% of broker compensation. However, the method of determining compensation will remain unchanged.
75% of the deferred compensation will be in cash and vested over eight years while the remaining will be in the form of stock and ready to be collected after four years. Previously, only bonuses were deferred from the advisors compensation.
Morgan Stanley remains focused on reducing broker compensation as a proportion of total revenue. The augmented deferrals will result in short-term decrease in compensation costs for the bank.
A number of Wall Street banks are now heading towards a similar direction, especially after the financial crisis of 2008. The idea is to curb the aggressive risk taking of the brokers’ to some extent. However, brokers are discouraging the adoption of new increased deferrals due to obvious disadvantages.
Banks such as UBS AG (UBS), Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) also implemented similar deferral plans. However, Morgan Stanley’s approach is said to be a little advanced resulting in additional discontentment among brokers.
The bank expects this increased deferred compensation to persuade brokers to maintain a steady and long relationship with it. However, some brokers do not share this view as they feel trapped with the bank holding back more of their cash. Though these higher pay deferrals will not provide any substantial savings benefit, it will protect the bank to some extent if a broker leaves the bank early.
Currently, Morgan Stanley has a Zacks Rank #3 (Hold).
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