MS Morgan Stanley

By Lisa Beilfuss 

Morgan Stanley is changing how it pays its brokers, pushing them to embrace new technology in a move meant to draw in more clients and a bigger share of their wealth.

The Wall Street brokerage said in a memo Monday to its roughly 16,000 financial advisers it would reward those who use recently launched financial-planning tools that give more visibility into where clients have their money -- including funds held elsewhere -- and how they spend it.

Morgan Stanley has invested heavily in technology as it seeks a bigger share of clients' wealth and looks to get more out of its brokers by automating part of their job.

Like other brokerages, Morgan Stanley is trying to boost profits, attract younger investors and increase its share of clients' assets and debt as it battles competition from cheap automated advisers and brokers who have become independent advisers.

To that end, the firm and its rivals are refashioning their ranks of advisers as they move away from a business under which these employees receive a commission for buying and selling securities on clients' behalf and toward one in which the firms charges fee for assets under management.

"A combination of advisers and technology will drive the future of financial advice," a Morgan Stanley executive said Monday, describing the compensation changes as a way to prod advisers to adjust the way they operate.

With the changes effective next April 1, Morgan Stanley brokers will have several ways to earn more money. Executives said the highest producers -- those bringing in at least $5 million a year in revenue -- would be able to keep up to 58.5% of the money they generate for the firm, up from a current 55.5%, through a combination of using the new technology and hitting certain targets for new net assets acquired from clients.

They stand to make even more by getting clients to take on more debt, from mortgages to portfolio-backed loans, and do more of their banking at Morgan Stanley.

The average Morgan Stanley adviser brings in about $1.1 million a year to the firm in revenue generated from clients.

Some of the changes center around smaller clients, often an afterthought for Wall Street brokerages because they are less profitable. As new technology frees up advisers from some day-to-day tasks, Morgan Stanley is now encouraging advisers to take on clients with as little as $100,000 in assets under management.

The firm will pay advisers an extra percentage point in compensation if they put those relatively small clients into a plan under which they can see the customer's assets beyond what is held at Morgan Stanley. These plans are meant to accomplish certain financial goals for the client, and can help advisers bring in more of the client's wealth that isn't already held at the firm.

But advisers taking on clients with less than $250,000 in assets would face a penalty if those clients don't use the enhanced service.

Advisers also will make more by getting clients to do their everyday banking at Morgan Stanley. For accounts where the firm has full transparency into a client's financial life, advisers will earn 0.15% on the balances, up from a current 0.05%.

As part of its push to encourage more lending, the firm is near-doubling the reward for advisers who bring in more client debt. Executives said changes to Morgan Stanley's lending-growth award program would allow advisers to earn significantly more than in past years.

In the most recent quarter, Morgan Stanley's client loan balances stood at $82 billion, up 6% from a year earlier, the firm said.

The compensation revamp at Morgan Stanley follows pay changes this year at rival Merrill Lynch, the wealth-management arm of Bank of America Corp. Like Morgan Stanley, Merrill adjusted pay in a move to bring in new clients and juice asset and liability growth.

At Merrill, advisers who hit certain targets can keep up to 2 percentage points more of the revenue they generate, but those who miss minimum goals are punished with a pay cut of up to 2 percentage points.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

July 30, 2018 15:20 ET (19:20 GMT)

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