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Morgan Stanley Increases Advisor Retirement Payout

Firm's move to boost career-advisors’ loyalty ups retirement payouts by 10 to 50 percent.

Morgan Stanley Wealth Management is sweetening the deal it offers to brokers who choose to stay with the firm until their retirement—but with some stipulations.

In a memo sent Thursday to its 15,655 advisors, the wealth management unit announced the changes to its Former Advisor Program, or FAP. Assuming an advisor qualifies by earning enough in fees and commissions, the total maximum payout is increasing from 250 percent to approximately 350 percent of their trailing 12 months' revenue, a handsome increase that will surely cost the brokerage millions of dollars more in compensation expenses down the road.

In addition to the program’s existing Platinum Award, next year top brokers at the firm have the option to enroll in an additional retirement program called the Deferred Platinum Offering that will double their payout at the time of their departure. Advisors who choose to enroll in the new offering and generate at least $10 million in gross revenue for three consecutive calendar years will get 100 percent of their average annual revenue over the past 3 years, up from the 50 percent offered through the existing program. 

But to get the additional payout, advisors must also agree to a a 90-day garden leave notice, meaning they’re prohibited from working for a competitor for three months after they leave. No matter when an advisor enrolls in the Deferred Platinum Offering, they only need to give Morgan Stanley a 12 months’ notice before they plan to retire.

Other advisors with $2 million to $5 million in revenue can also agree to a 90-day garden leave to boost their payout from 50 percent to between 60 and 65 percent of their trailing 12-month production.

Changes were also made to post-retirement compensation during the first 5 years after an advisor retires. Morgan Stanley bumped up the monthly payments to eligible advisors based on clients they were responsible for prior to retiring.

Brokers with revenue of at least $485,000 during their trailing 12 months can negotiate higher revenue splits of 10 percent more per year. The new maximum splits will be 80 percent, 75 percent, 70 percent, 65 percent and 60 percent per each respective year.

Vince Lumia, the head of Field Management at Morgan Stanley Wealth Management, said in a memo that the primary goal of the FAP is to “ensure clients are looked after with the same degree of service they’ve always benefited from” once an advisor has decided to leave the industry.

The changes to Morgan Stanley’s retirement program are a result of market pressure as the wirehouses are competing with each other, as well as rapidly evolving business models for independent advisors, said Russell Norwood, the founder of the $750 million Venturi Wealth Management in Austin, Texas.

Norwood, who spent 23 years at Merrill Lynch, said he walked away from the top retirement payout at the brokerage because the economics of starting his own RIA were better. If he eventually sells his firm, the multiple will be many times higher than the payout brokerages offer. But he also liked that he could maintain control of the equity in the business he had built.

But still, he said the changes are a positive for advisors employed by brokerages. “The good news is that what’s happening is that market forces are closing the gap,” Norwood said.

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