Morgan Stanley's New Broker Plan Takes Aim at Its Wealthy Clients
Morgan Stanley has revamped its compensation program for brokers as part of its efforts to build its lending business and increase cross selling by its brokers. The plan rewards brokers for pulling in assets from wealthier clients.
"No one will see it as negative or draconian," said Mindy Diamond of Diamond Consultants, a Wall Street recruiter. "Brokerages have always used compensation plans to incent behavior and these days they want brokers cross selling products and lending money to clients."
Morgan Stanley Wealth Management's CEO Greg Fleming has made growing client loans a cornerstone of his plan to increase the unit's return on equity, a measure of profitability, to the mid-teens by 2013. In a recent presentation Fleming pointed out once the firm acquires the remaining stake in Citigroup's brokerage it doesn't presently own, Morgan Stanley Wealth Management will be the 11th largest bank in the country by deposits. This deposit base, Fleming said, will provide a stable foundation to deliver high margin banking products to the brokerage's customers.
The new pay plan rewards asset growth, paying higher commissions on net new assets and loans made to clients. Top performing brokers will also have the opportunity to buy Morgan Stanley's stock at a discount as part of a new capital accumulation plan.
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Revenue produced by transactions, such as executing stock trades, now carries a smaller commission than last year. Under the new plan commissions on smaller, less profitable accounts, or those less than $100,000, have also been reduced. Instead brokers are encourage to transfer these accounts to a new Client Advisory Center, essentially a call center that can handle these clients questions and transactions.
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Morgan Stanley's emphasis on growing accounts held by wealthier clients is not unusual. This is a goal of all the major brokerages as these accounts are far more profitable.
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—By CNBC's Mary Thompson; Follow her on Twitter: @MThompsonCNBC