Morgan Stanley has unveiled a new compensation plan for brokers that rewards fee-based business and penalizes transactional business. The plan, announced in mid-September to brokers, begins in January 2003.
The plan calls for a two percent raise across the grid for fee-based business and a one percent drop for transactional. The firm also told brokers that it will not pay reps anything on transactions of $85 or less.
Under the current model, brokers producing $600,000 a year receive a payout of 39 percent no matter where their revenue came from. But under the new pay system, brokers receive an increased payout of 41 percent on asset-based revenue, but the payout drops to 38 percent for transaction business.
The new comp policy does not affect all brokers equally. Brokers earning $800,000 or more a year in transaction revenue will not see their payout affected.
"The one percent drop in transactional business doesn’t bother as much as not paying on trades of $85 or less," says a Morgan broker. "Because of this, they’ll see a lot of clients not being taken care of now. A lot of brokers won’t do trades for clients now. They’ll tell them to take their [trade] business somewhere else. Maybe that’s firm’s intention--getting rid of guys who do small trades. My belief is that those small trades amount to a lot more than they think."
Morgan Stanley is also discouraging brokers who have small accounts. For instance, the payout for "small households," which are considered accounts with less than $25,000 in assets, will be 30 percent for fee-based products and 20 percent for transaction business, according to the new compensation plan. A Morgan Stanley spokesman declined comment.
This change follows similar initiatives from Merrill Lynch and Prudential Securities, where smaller accounts are relegated to service centers rather than individual brokers.