Morgan Stanley has won its fifth straight arbitration claim from a former advisor arguing its deferred compensation plan is illegal under federal law.
The favorable decision for the wirehouse comes several months after a federal appeals court denied its attempt to appeal a lower court’s argument that the deferred compensation plans ran afoul of the 1974 Employee Retirement Income Security Act, which mandates minimum protections in private industry retirement plans.
Bryan J. Schon and Michael Dymkowski were the two claimants in the arbitration. According to SEC records, Schon joined the industry in 2002, working at UBS and JPMorgan before joining Morgan Stanley in 2012.
Dymkowski registered in 1993, working at Edward Jones and Banc One before joining Morgan Stanley in 2013. Both advisors moved to Wells Fargo in 2022.
According to the arbitration award document, Schon and Dymkowski filed the claim in May 2024, collectively asking for more than $1.27 million.
Morgan Stanley will deem some advisors’ compensation as “deferred,” withholding it and allowing it to vest for several years. According to the wirehouse, if an advisor leaves before that pre-determined vesting date, they forfeit the compensation (also known as the “Cancellation Rule”).
In their claims, the duo alleged that ERISA covers Morgan Stanley’s Deferred Compensation Program for advisors and that the rule forfeiting compensation if an advisor leaves Morgan Stanley violates federal law.
But on Aug. 21, a three-person Detroit-based panel ruled against the advisors “in their entirety,” splitting the session fees equally between the duo and the wirehouse. In a statement about the ruling, a Morgan Stanley spokesperson asserted that the deferred compensation program “is not a pension plan.”
“We are gratified that after a comprehensive review of all the evidence, arbitration panels are repeatedly reaching the same correct conclusion based on the facts and the law: Morgan Stanley grants deferred compensation to financial advisors during their employment to promote retention and good guardianship,” the spokesperson said.
Attorneys for the duo did not return requests for comment prior to publication.
The decision is Morgan Stanley’s fifth consecutive arbitration win on the issue; last month, a Michigan-based panel ruled in favor of the wirehouse
against Patrick T. O’Neill, a rep who left to join Raymond James’ independent division and brought an arbitration claim on similar grounds as Schon and Dymkowski.
The Schon and Dymkowski hearing sessions occurred the same week that the Second Circuit Court of Appeals ruled against striking language from a lower court judge arguing that Morgan Stanley’s deferred compensation plans were ERISA-covered.
That case originated as a class action by Matthew Shafer, a Florida-based rep who left Morgan Stanley in 2018. Shafer and other plaintiffs brought the suit for all former Morgan Stanley advisors in similar situations.
In 2023, the district court judge ruled that advisors had agreed to argue claims in private arbitration, but agreed with the plaintiffs’ assertions that federal law covered the plans. Advisors’ attorneys continue to hope it will strengthen their cases in arbitration.
Morgan Stanley appealed to strike the language, but the appeals court argued the wirehouse was free to argue the original judge’s conclusions were “legally incorrect.”
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