Morgan Stanley pay cuts deferred compensation, adds bonuses

Amid a legal barrage over its deferred pay policies, Morgan Stanley is reducing the portion of advisors’ pay that they must often wait years to receive.

Morgan Stanley announced in a memo released Thursday that it will be making no changes to its basic compensation grid for advisors next year while cutting in half the portion of their pay they often have to wait years to receive. As part of that change to advisors’ deferred comp, the cash payments they receive every month will be increased by an equal amount. 

Like most large wealth managers, Morgan Stanley disburses some pay quickly after it’s earned and then holds some back in the form of deferred compensation to reward advisors who stay with the firm for a set number of years. Morgan Stanley’s deferred comp comes in two forms: cash, which takes six years to be disbursed, and company stock, which takes four years.

READ MORE:What to expect in advisor pay in 2025Best advisor pay for $400K producersBest advisor pay for $600K producersBest advisor pay for $1M producersBest advisor pay for $2M producers

Deferred pay and ongoing legal challenges

The percentage of advisors’ total pay composed of deferred compensation varies depending on how much revenue they generate for the firm in a given year. Advisors producing $2 million annually now get $96,000 of their total pay of $960,000, or 10%, in the form of deferred comp. Advisors at the $400,000 production level get $3,400 of their $136,000 in total pay, or 2.5%, as deferred comp. 

From lowest to highest, Morgan Stanley’s deferred comp rates now range from 1.5% to 15.5% — the latter for advisors producing $5.5 million or more a year. Starting on Jan. 1, those deferred percentages will be cut in half and the share of their total pay that advisors get to take home every month will be increased by a corresponding amount.

The changes come amid ongoing legal disputes brought by advisors who left deferred compensation behind when they exited Morgan Stanley to join another firm. The actions all make the same claim: Morgan Stanley’s deferred comp is a retirement benefit guaranteed by the federal Employee Retirement Income Security Act of 1974, or ERISA. Morgan Stanley counters that deferred compensation is a bonus to reward advisors for not leaving the firm and not running afoul of industry regulations.

Bonuses for net new assets, deposits

Deferred comp aside, Morgan Stanley’s pay plan offers a couple of new incentives to encourage advisors to build their business by bringing new assets or get their clients to put money into the firm’s savings accounts and certificates of deposit. 

One type of new bonus will be offered to advisors who bring in more than $5 million in net new assets or loans next year. To receive it, though, advisors will have to derive that business growth from at least 40% of their clients. Advisors who meet those criteria will see the rates for the annual cash bonuses the firm now pays as a growth incentive rise to 9% from 3%. Those bonuses are calculated as a share of their annual revenue generation and can help them move up to higher tiers in the firm’s pay grid.

Separately, Morgan Stanley advisors whose clients put more than $3 million into the firm’s preferred savings accounts and proprietary certificates of deposit will also receive a cash bonus. That reward will be paid at a rate of 0.3% (30 basis points) of the net new deposits.

Vince Lumia, Morgan Stanley head of wealth management client segments, said in a memo announcing the changes that the new “plan is designed to recognize and reward growth as you continue to scale your practice and deliver the full range of the Firm’s differentiated capabilities to your clients.”

“Investing in your success remains our top priority, and the enhancements to the plan will continue to support your business and help drive growth,” Lumia added.

Change in the definition of a ‘small household’

Not everything in the plan is likely to be welcome by Morgan Stanley advisors, though. Alongside the changes to deferred compensation and growth bonuses, the firm announced its modifying its definition of a “small households” — which don’t count toward the assets advisors are paid on.

On Jan. 1, Morgan Stanley will raise the cutoff point to households with $300,000 in assets and loans. That’s up from $250,000 this year. 

Although the change is likely to sting, Morgan Stanley noted there are exceptions to its small household policy. Any new client relationship an advisor strikes up is exempt from it for a year. Also carved out are households that are below the threshold but are bringing in more than $25,000 in net new assets and loans.

Morgan Stanley’s announcement of its compensation policies for 2026 comes just days after its wirehouse rival UBS did the same. Morgan Stanley’s compensation policies were first reported by the industry publication AdvisorHub.