Morgan Stanley shifts broker bonuses to reward growth

Thu Dec 6, 2012 9:50pm EST
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By Lauren Tara LaCapra and Jennifer Hoyt Cummings

(Reuters) - Morgan Stanley's (MS.N: Quote) wealth division, in a change to how it rewards its increasingly important brokerage force, is cutting bonuses tied to the revenue that advisers generate, but also offering discounted stock and new incentives to brokers if they bring in new assets and get their clients to borrow money.

Morgan Stanley Wealth Management announced the 2013 compensation plan Thursday 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. 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.

"That's a gift that's got strings. They're giving you a discount on stock and ownership in their company but saying, 'Don't leave us and if you do you lose it'," said Tony Riotto, founding partner of Riotto Jones, a recruiting firm for private bankers.

Morgan Stanley shares were down 1.4 percent, closing at $16.74, on Thursday. Its shares are up 11 percent this year.

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 percent of the firm's ongoing revenue.

Nearly four years into its acquisition of the Smith Barney brokerage from Citigroup Inc. (C.N: Quote), Morgan Stanley is focusing on profit growth, and the new pay plan is meant to align brokers' pay to these goals, including growing its loan book.

To do that, the firm must cut back in other areas. The so-called revenue bonus, which goes to advisers who generate at least $750,000, will be cut by 2 percentage points next year, to a range of 0.5 percent to 4.5 percent. A broker bringing in just that amount will see his revenue bonus drop by $15,000. At 4.5 percent, a broker with $5 million in revenue will get $100,000 less.   Continued...

The headquarters of Morgan Stanley is seen in New York June 1, 2012. REUTERS/Eric Thayer