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Morgan Tinkers with Grid; Wants FAs to Aim High

In a broadcast Thursday afternoon to the firm’s U.S. financial advisors, retail head James Gorman announced the rollout of a new compensation program for 2007—one that will increase the firm’s spending on compensation by tens of millions of dollars. But, in an effort to get reps to think big, accounts below $50,000 will no longer generate any compensation for the rep (unless they are in certain favored accounts).

In a broadcast Thursday afternoon to the firm’s U.S. financial advisors, retail head James Gorman announced the rollout of a new compensation program for 2007—one that will increase the firm’s spending on compensation by tens of millions of dollars. But, in an effort to get reps to think big, accounts below $50,000 will no longer generate any compensation for the rep (unless they are in certain favored accounts).

The “10-point plan for success,” as Gorman called it, is primarily a series of minor amendments to the current system rather than a wholesale overhaul. The new plan includes a 1 percentage point increase in payout across the board; it extends stock option benefits and bonuses to financial advisors, with rewards for loyalty and production; and it includes increased travel-and-entertainment budgets for producers with over $1 million in production. It also provides greater incentives for Morgan advisors to either use fee-based products and/or to work with clients who invest more than $75,000 with the firm.

All Morgan advisors with production of $300,000 or more will be able to commit up to 25 percent of their pretax income to a new deferred-compensation program, which includes stock options as well as bonuses based on length of service that start at 20 shares for every 100 purchased. Financial advisors producing $500,000 or more will also have access to the company’s own alternative investments program.

In addition, advisors will now get a reduced payout for households with between $50,000 to $75,000 (before this was $35,000 to $50,000) and will get no payout on households with less than $50,000—unless the client is doing fee-based business through the firm’s “Fund Solution,” “Portfolio Architect” or “Personal Portfolio” accounts. On a follow-up conference call with press, Andy Saperstein, COO of national sales, said the intent was not to kick accounts under $50,000 to call centers, as Merrill Lynch does with accounts under $100,000 today. But Morgan is said to be developing its own call-center program.

“We decided that the smartest investment we could make in this business is to invest in our financial advisors and the support staff in the field,” said Saperstein. “Our financial advisors are our most valuable assets. The whole program is the richest on the Street, and will allow advisors to share in wealth creation as the company does better. The strategy of the compensation plan was to reward loyalty so that this becomes the best place for reps to begin their career, work through their career and end their career—and make the most money.”

Other changes include a new discounting policy on equities, options, margin lending and some of the wrap and managed products that are available through the consulting-services group. Essentially, if an advisor discounts more than 20 percent of the cost of a sale, he will begin sharing a portion of the cost of that discount. And the retail brokerage also plans to launch a new advertising campaign in the first quarter of next year.

The new program should reassure financial advisors that James Gorman is indeed done with the pruning phase of his revamp of the Morgan retail brokerage and on to the rebuilding stage. There had been rumors for months that the firm just might cut another round of low-end producers and that it would probably increase the “penalty box” (in which payouts are reduced) on its grid from $250,000 to $300,000. But the firm did neither. “Gorman said no further layoffs at Morgan Stanley. We’re done with that. We want to find ways to help people succeed and prosper,” said company spokesman Jim Wiggins on the call. (Of course, Gorman has said as much several times, but Morgan FAs have been a skittish bunch since the firmwide restructuring began and CEO John Mack cut 1,000 brokers last summer.)

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