Morgan Stanley Smith Barney said that it may terminate more brokers than had been previously announced, as its cost slashing efforts continue, according to Andrew Osterland’s InvestmentNews article entitled “Reps face belt-tightening at MSSB.” The reasons given for the reduction in force are that the firm is less than half as profitable as expected, and the pace of integration of the Smith Barney retail business is not what management and analysts had hoped it would be. The previous target was 17,500 advisors. The firm terminated 300 trainees and low-producing advisors in the second quarter, after having closed 19 retail locations in the first quarter.
“Firms are always trying to do things to slow down grid creep [compensation],” one compensation consultant was quoted as saying, adding: “They might raise the bar for low-end producers or they may lower the payout.”
Advisors that produce significantly less than $767,000, the average production per MSSB advisor are likely to feel pressure to increase their production, to earn less pay or to even face termination.
According to MSSB spokeswoman Christine Pollack, while there is no required-minimum-production level at MSSB, “penalty box” pay is “bad.” Advisors with more than eight years’ experience who generate revenues of less than $250,000 reportedly may receive a payout of just 20%, if they are not terminated.
On the other hand, big producers are not expected to be affected by the cost-cutting regimen. “The demand for high-end producers is still very strong,” according to the above-quoted compensation consultant, who added: “When firms focus on compensation costs, they don’t want to reduce their sales levels.”
Attorney J. Boyd Page, the senior partner of age Perry based in Atlanta, said: “Morgan Stanley’s situation is obviously complicated by the merger with Smith Barney. As management tries to cut costs to deal with inefficiencies and integration problems, brokers are facing the possibility of being fired or forced to leave. I would expect this to lead to disputes involving front-end bonuses, retention bonuses, possible wrongful termination claims, and other issues arising out of brokers’ employment agreements and the circumstances of the terminations.”
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