Morgan Stanley beats ex-Fla. advisors’ claims to deferred compensation

Expect to see more inconsistency around deferred compensation claims, says one attorney.

Just weeks after losing a $1.1 million arbitration award to former advisors in a fight over deferred compensation, Morgan Stanley on Monday defeated a similar lawsuit from eight former brokers who sued the wirehouse in 2022 seeking $855,000 in deferred compensation they had claimed should be handed to them because it was retirement money protected by ERISA – the Employee Retirement Income Security Act of 1974.

A panel of three arbitrators under the aegis of Finra Dispute Resolution Services decided against the eight former Morgan Stanley advisors, who are scattered across Florida and have jumped in the past few years to a variety of Morgan Stanley competitors, including Wells Fargo Advisors, Raymond James & Associates Inc. and Ameriprise Financial Services.

According to the award, those eight advisors claimed, among other charges, a violation of ERISA by Morgan Stanley related to the firm’s various deferred compensation and incentive pay plans.

In an unusual development for Finra arbitration awards, the three panelists wrote a two-page summary of their reasoning for denying the financial advisors’ claim. Finra arbitrators are not required to explain their decisions in disputes they oversee.

“The singular issue presented was whether [Morgan Stanley’s] Financial Advisor Deferred Compensation Program was governed by ERISA,” the arbitrators wrote. “Looking at [Morgan Stanley’s] Financial Advisor Deferred Compensation Program as a whole, both its operative provisions, and its language informing [the advisors] that it was not a retirement plan, that it was not an ERISA plan, etc., looking at the data on when most awards were received, and taking all of the other evidence into consideration, the majority of the Panel was not persuaded that [Morgan Stanley’s] Financial Advisor Deferred Compensation Program was a ‘pension plan’ under ERISA.”

Alan Rosca, the attorney for the eight former Morgan Stanley advisors, did not return a call Tuesday morning to comment.

“We are gratified that after fully evaluating all the evidence, the panel reached the correct conclusion based on the facts and the law: Morgan Stanley awards deferred compensation to financial advisors during their employment to reward them for retention and good guardianship,” a Morgan Stanley spokesperson wrote in an email. “That is not a pension plan.”

In the past, advisors leaving a wirehouse would have automatically forfeited potentially tens or hundreds of thousands of dollars of deferred compensation, or a small amount of gross revenue the firm takes and holds, and which typically requires advisors to stay for years in order to vest.

But financial advisors automatically losing that deferred compensation, often referred to as the golden handcuffs in the securities industry, the moment they walk out the door of the old firm appears to be less automatic. Financial advisors have seen some legal wins of late and are using ERISA to argue their claims.

“Just like with other issues before Finra arbitration panels, there are inconsistencies in decisions, and as a result the only thing that makes sense is if Finra or the Securities and Exchange Commission put out guidance on issues like this,” said James Heavey, an industry attorney. “Without clear rules are regulation, we’re going to continue to see inconsistent decisions from arbitration panels about deferred compensation.”