After three years of market gains driving asset values upward, Morgan Stanley will require advisors next year to produce a bit more revenue to make the same take-home pay.
Morgan Stanley plans to increase the revenue thresholds advisors must cross to move from a lower payout rate to a higher one by 10% across the board, according to a memo sent to employees Thursday. Since revenue production in wealth management mostly comes from client assets, the change means Morgan Stanley advisors will have to have more in the accounts they oversee if they don't want to suffer a pay drop next year.
Many firms periodically adjust payout policies to combat a phenomenon known as "grid creep." This refers to the ability of advisors to make more money simply because the assets they manage are appreciating, rather than because of their ability to bring in new clients or invest existing clients' assets wisely.
The last time Morgan Stanley adjusted its pay thresholds for advisors was in 2024.
"If you're trying to keep your payout rate in a percentage term steady, you're always having to make some reductions in your compensation rates to partially offset that," the compensation consultant Andrew Tasnady explained to Financial Planning last year. "I've never seen firms completely offset grid creep. But they partially offset it, one of the options is just to do a grid stretch."
Sources familiar with Morgan Stanley's pay policies noted that gross revenue for the firm's financial advisors has increased by 56% on average over the past three years. During the same period, the firm's haul of net new assets — which excludes market appreciation — has been $1.1 trillion.
Even as Morgan Stanley requires advisors to generate more revenue to move from one compensation rate to the next higher, it's not changing the actual percentages it pays out. Those will still range from 28% for the lowest producers to 55.5% for the highest.
This year, Morgan Stanley advisors who produced $1 million in annual revenue were able to take home 44% of that total. Those who produced $2 million kept 48%.
"Each year, we take a thoughtful look at our plan to make sure it continues to reward growth, encourage the right behaviors and drive our strategy," Vince Lumia, head of client segments at Morgan Stanley Wealth Management, wrote in the memo. "The 2027 updates are designed to support the continued strength of our business while helping you maximize the full potential of your practice through the Firm's unmatched resources."
Changes for advisors in Morgan Stanley's retirement program
The changes, first reported by the industry publication AdvisorHub, also include a bonus for advisors who plan to retire through the firm's Advisor Legacy Program. Currently, advisors with 25 or more years at the firm can receive a 15% percentage point increase to their payout rate in retirement. Starting next year, that will go up to 17% for advisors with 30 or more years at the firm.
Although Morgan Stanley made no changes to its payout grid this year, it did modify other compensation policies. The amount of pay offered in the form of deferred compensation — which advisors usually must wait years to receive — was cut in half while regular pay was increased by corresponding amounts. Morgan Stanley also started offering new incentives to encourage advisors to build their business by bringing new assets or getting their clients to put money into the firm's savings accounts and certificates of deposit.
