Morgan Stanley Raises Minimum Stock Ticket Charge by 25%
In another sign of the barriers big brokerage firms are erecting against traditional transactional accounts, Morgan Stanley as of January 1 will raise the minimum commission charge that customers pay on stock trades by 25% to $125.
The move, from a minimum charge of $100, comes as firms motivate their brokers with carrots and sticks to sell so-called advisory accounts that charge a flat percentage of assets in a customer’s account.
The brokerage industry prefers fee accounts because they provide recurring income whether or not a customer trades and because charging commissions for retirement accounts makes brokers and their firms vulnerable to lawsuits under the impending Department of Labor fiduciary rule.
Brokers at Morgan Stanley and other firms said that though few of their clients will blink at the “ticket” increase, the revenue can be substantial to a firm whose almost 16,000 brokers on average generate more than half customer revenue from commissions rather than fees. (Wells Fargo raised minimum ticket size on stock transactions to $125 from $95 in 2015.)
Brokers also offer discounts on commissions to many of their affluent clients, a practice that Morgan Stanley, Merrill Lynch, Wells and other firms have been limiting by cutting broker payouts if discounts break increasingly shrinking limits and by requiring upper management approval in some cases.
As first reported in x3mdot, Morgan Stanley also has raised the amount of fees and commissions that brokers must collect from customers in 2017 in order to earn the same payout percentages they are making this year. Merrill Lynch has kept its so-called grid payout formulas unchanged for 2017 but has raised the quota on referring customers to parent Bank of America for loans and other products in order to avoid a pay penalty.
Morgan Stanley in 2017 also continues to incentivize brokers to sell mortgages, structured loans and portfolio-backed lines of credit to their customers. To qualify for a loan-growth bonus that can reach $202,500, brokers must have an increase in their previous year’s production and grow customer loan balances by a minimum of $500,000. That’s a refinement from this year’s bonus calculation, which required brokers to generate six new customer loans in addition to the half-million-dollar loan-balance requirement.
Although a state regulator has accused Morgan Stanley of illegally incentivizing loan sales by increasing brokers’ tax-friendly expense-account allotments, the biggest U.S. brokerage firm is sticking with incentives by increasing what its brokers are paid on outstanding loan balances by a maximum of 10 basis points in 2017. (It also is contesting the regulatory charge.)
Brokers who make three new mortgages will be credited with .60% of the loan amount, up from .50% currently, and can pocket .75% of the mortgage amount on any additional home loans (not retroactive to the first three) made in 2017. To encourage brokers to open general-purpose credit lines with loans secured by investment portfolios, Morgan Stanley is increasing the payout on such loans to .65% next year from .55% this year.
The company, which gives client associates $50 for every credit card account they help their brokers open, also is enlisting the sales staff in the loan effort through an enhanced “business development” allowance and staff support award next year. Since most brokers pay a large part of their staff compensation out of their own pocket (with pretax expense account dollars up to a certain point), Morgan Stanley is giving brokers up to $10,000 to pay staff for lending help with an additional 25% increase in expense allowance to be paid in 2018.