Morgan Stanley eyes compensation cuts for financial advisers: sources

Tue Jul 1, 2014 12:08pm EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - Morgan Stanley (MS.N: Quote) wants to pay out a smaller portion of wealth management revenue to the retail brokers who generate it, the final and perhaps most difficult front in Chief Executive James Gorman's drive to reduce staff costs across the bank.

For now, executives are considering changes at the margins: cutting pay for brokers who generate the least revenue for Morgan Stanley Wealth Management, and slashing the money it sets aside to lure experienced new hires. Executives have been hashing out possibilities for the 2015 broker pay plan in recent weeks, but have not made any final decisions.

"There are some functions you don't need to continue to put money into as the revenue line grows, as we become bigger, as we are more selective on recruiting and we have less attrition," Greg Fleming, president of Morgan Stanley Wealth Management, said in an interview last month.

Reducing pay in the brokerage business is tough to do, because even mid-grade advisers are still in high demand and can easily leave for other banks, or strike out on their own, often taking some prize clients with them. Demand for talent is slacker in other businesses like trading.

Many customers are fiercely loyal to their financial advisers. That is particularly the case if they credit the advisers with helping to make them wealthy.

Clients share personal information during marriages, divorces and family emergencies, and advisers can become almost like personal concierges to top clients - offering access to hot investments, coming up with loans for medical procedures, or wining and dining them at celebrity cocktail parties and sporting events.

Executives at Morgan Stanley are trying to ensure they incentivize the brokers to do the right thing for customers and the firm. The bank is hoping to reduce the commissions brokers get to simply buy and sell securities, and to instead encourage them to offer more holistic financial advice.

Gorman said at a conference last month that he wants to pay 55 percent or less of wealth management revenue to brokers, 5 percentage points down from the current 60 percent. Fleming is responsible for hitting that target.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013.

REUTERS/Mike Blake