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Morgan Stanley's Lucrative New Retirement Packages Might Come with a Big Catch

By Miriam Rozen October 19, 2018

Morgan Stanley management yesterday unveiled new retirement packages aimed at coaxing the wirehouse’s top tier producers to stay with the firm and then pass on their books of business when they eventually leave.

The new plan, first disclosed by AdvisorHub, will be effective Jan. 1, 2019 and was developed as a result of negotiations between the firm’s management and a group of its top tier advisors.

The new plan bolsters post-retirement bonuses for those very top tier advisors. Under the plan, their retirement total payouts jump from a previous maximum of 250% of their 12-month trailing production to a new maximum of 350%.

Notably though, the new plan defers full cash payouts for as long as ten years after an advisor signs up for the retirement program. But, according to a firm spokesperson, advisors who have annual production of $5 million or more for three consecutive years and participate in the program may manage how the deferred payments are invested during the 10-year vesting period.

Also, if participating advisors die before those bonuses are fully vested, upon their deaths the firm will distribute the bonuses to the advisors’ estates as if the advisors had survived for the 10-year waiting periods, the firm spokesperson confirmed.

Only advisors who have generated at least $10 million in gross revenues for three years prior to enrolling in the new plan are eligible for the maximum awards. And the new bigger bonuses for its nearly 800 eligible brokers – who produce more than $2 million in fees and commissions annually – come with multiple strings attached. Chief among those strings: to enroll in the plan, advisors must sign “garden leave” contracts that bar them from working at a rival for 90 days. So if participating advisors decide to leave, they are barred from working at a rival for 90 days and they forgo their retirement program bonuses, according to the firm spokesperson.

Top brass at the wirehouse introduced the new plan to branch management at roughly 9am on Oct. 18. A management memo appeared in Morgan Stanley’s more than 15,000 advisors’ email inboxes around noon that same day. Many Morgan Stanley advisors remain uncertain about all the details at press time for this story Thursday evening. But already some reps have expressed concerns the new plan may not be good news for everyone.

“It’s very difficult to ascertain if they are going to be giving you less or giving you more in the future, but it appears they may be deferring your monies over a longer period of time. I don’t think it’s good for older advisors,” one advisor tells FA-IQ, speaking on the condition of anonymity.

In announcing the new plan, the firm’s management stressed that participation was voluntary and that previous retirement plans remain available.

“This is just insurance to lock up the biggest advisors,” surmises Danny Sarch, a recruiter and president of Leitner Sarch Consultants in White Plains, New York.

“It’s significant,” says Thomas Lewis, an attorney at Lawrenceville, New Jersey-based firm Stevens & Lee, who represents both financial advisors and their employers.

“Morgan Stanley is trying to keep advisors from jumping to a competitor and keep their assets on board. No competitor is going to pay 350% for a book of business,” Lewis said, although there have been offers of up to 300%.

“Morgan Stanley has decided, ‘We are going to do the best deals out there for our largest producers.’ This is at a level that advisors may say, ‘I’m going to stay on board,’ ” Lewis says.

Morgan Stanley’s new program lets top tier advisors “monetize their book of business,” Lewis says. The firm is telling them: “We are going to pay you a king’s ransom to stay,” so it’s easier for them to stay. They don’t have to deal with the disruption.”

All told, Lewis tags Morgan Stanley’s announcement as “a smart move” by the firm.

The new plan distinguishes Morgan Stanley from other wirehouses, including UBS, which also have retirement packages to entice veterans to give their books of business to firm colleagues before they exit but make their richest options available to a wider group of advisors. UBS, for example, makes its maximum payout retirement package options available to producers who have $1 million in 12 months trailing production.

(iStock Photos)

Vince Lumia, Morgan Stanley’s head of field management, sent the email describing the new plan, which he tagged as the enhanced Former Advisor Program.

“Whether you are in the early stages of your career or have been in the industry for many years, we want Morgan Stanley to be the firm where you choose to build a long and successful career,” Lumia told advisors.

Under the new plan, the firm will now allow for splits that are less favorable for advisors who are inheriting books of business from retiring team members. For instance, under the new plan, some top tier advisors may negotiate to collect after they retire 80% of the 50% payout on their former clients’ business. The current maximum split is 70% of that payout.

“Splits are negotiated and agreed upon by both advisor parties,” a Morgan Stanley spokesperson writes in an email, responding to a question on the new split allowances.

The same spokesperson declines to comment on the goals the firm has set for participation among eligible advisors in the enhanced FAP program, or about the projected costs of the new plan. AdvisorHub reported the new plan will cost Morgan Stanley “hundreds of millions.”