How Morgan Stanley and Your Financial Advisor Are Compensated
for Investments and Services
At Morgan Stanley, we believe it is important for you to understand the costs associated with obtaining investments and services from us. As our client, you benefit from the full scope of services and resources of a global industry leader. Through your Financial Advisor, you have access to our firms powerful capabilities: world-class equity research, high-quality debt and equity offerings, asset management expertise, financial planning and credit management tools and our team of in-house professionals, including retirement planning, estate and trust service specialists.
As a multifaceted financial services firm, we provide products and services intended to fit the needs of the broad spectrum of clients we serve, including products and services created by Morgan Stanley. Although we do not pay our Financial Advisors increased compensation to sell Morgan Stanley products, clients should appreciate that, inherent to an integrated firm, there are advantages that accrue to proprietary products and services. These advantages may include our employees familiarity with, confidence in and loyalty to the Morgan Stanley brand, and their easier and increased access to product, sales and service personnel and marketing and administrative support, including company-sponsored educational conferences, entertainment and corporate events. Additionally, subject to privacy and other regulations, our affiliates may gain increased access to customer information. Depending on the types of relationships you establish and the ways you choose to do business with us, Morgan Stanley is compensated for the services we provide through transaction commissions and markups, asset-based fees and/or other flat fees and charges. On the following pages, you will find a brief overview of the types of relationships you can establish with Morgan Stanley, and how our firm and your Financial Advisor are compensated for the services we provide.1
Choosing the Relationship and Pricing Structure That Works Best for You
We understand that when it comes to investing, no single approach is right for every investor. As part of our client-focused philosophy, we offer our clients many different ways to establish a relationship and conduct business to help meet the unique needs and preferences of each individual or family. Your Morgan Stanley Financial Advisor can help you decide which typeor combination of typesof account and pricing options is best suited for you. The client relationships we offer fall into two general categories: brokerage and investment advisory. There are two basic pricing options in the brokerage category: transaction-based pricing and asset-based fee pricing. Within the investment advisory category, you generally pay an asset-based fee for various types of available services.
In a brokerage relationship, your Financial Advisor will work with you to facilitate the execution of securities transactions on your behalf. Your Financial Advisor also provides investor education and professional, personalized information about financial products and services in connection with these brokerage services. You can choose how you want to pay for these services and you will receive the same services regardless of which pricing option you choose. There are a variety of factors you should consider carefully before choosing a brokerage pricing option, such as your trading activity, the types of securities you plan to purchase, your investment objectives and your personal preferences. For example, if you plan on primarily buying and holding securities, transaction-based pricing may be more cost effective. However, if you plan on trading more regularly, asset-based fee pricing may be more appropriate for you. For more information, please consult with your Financial Advisor.
- Transaction-Based Pricing
With transaction-based pricing, you pay for the services you request and you pay commissions, sales loads, markups/markdowns or other fees for each transaction you and your Financial Advisor execute. You can conduct transaction-based business in virtually all financial products and services within an Active Assets Account® or in retirement, education savings, trust or other accounts we offer.
- Asset-Based Fee Pricing
With the Morgan Stanley ChoiceSM account, you pay an annual fee based on the eligible assets in your account rather than commissions, front-end sales loads, markups or markdowns or certain other transaction fees. Assets that are eligible for asset-based fee pricing in a Morgan Stanley ChoiceSM account include stocks, bonds, options, certain mutual funds, exchange-traded funds, certain money market funds and cash. Generally, you pay the Morgan Stanley ChoiceSM fee quarterly in advance, based on the average of the total value of the eligible assets at each month-end during the previous quarter. You also pay transaction-based fees for trades in ineligible assets and certain other charges as set forth in your account agreement. If you terminate your Choice account or if you or Morgan Stanley decide asset-based pricing is no longer appropriate for you, then your account will convert to a transaction-based brokerage account. In this case, transaction costs will be applied and certain other fees, such as 12b-1 or other distribution fees, which were not paid to your Financial Advisor when your account had Choice status, may be paid to him or her. A minimum of $50,000 in eligible assets is required to establish this type of account.
Your Morgan Stanley ChoiceSM account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. Morgan Stanley is paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons compensation, may vary by product and over time. If you wish to discuss the difference between a brokerage account and an advisory account, please call toll free at (866) 463-6739 for more information.
An investment advisory relationship is designed for clients who prefer that their Financial Advisor act as an investment consultant, with their assets invested in a mutual fund asset allocation program, or in a separately managed account (SMA) that is directed by a professional money manager either at Morgan Stanley or at an external money management firm, or in our Morgan Stanley Custom PortfolioSM
program where a highly trained Financial Advisor may act as the money manager. Your Financial Advisor remains involved as a consultant, helping you monitor performance and make portfolio or other adjustments, if required. Generally, you pay an annual fee, charged quarterly in advance, based on the total amount of assets in your account at the end of the previous quarter.
The asset-based fee generally covers investment consulting and certain brokerage services provided by Morgan Stanley and may also include investment management fees. Clients can choose from our comprehensive suite of mutual fund asset allocation and SMA programs that are designed for various levels of investment and sophistication, with asset minimums that range from $10,000 to $1 million or more. Mutual fund asset allocation programs invest in mutual funds. Assets in an SMA may include stocks, bonds, money market funds, mutual funds, options, exchange-traded funds and cash. Clients can establish investment consultant relationships for their retirement or trust accounts in addition to their personal investment accounts. For more information, please consult with your Financial Advisor.
How We Compensate Your Financial Advisor
Your Morgan Stanley Financial Advisor is a trained and licensed securities professional who can help you define your financial goals and develop an investment strategy and action plan to achieve them. He or she provides investor education and personalized financial information to help you implement that plan with financial products and services suitable for your individual needs. He or she provides ongoing guidance in response to your changing needs and a changing financial marketplace.
Your Morgan Stanley Financial Advisor is compensated by sharing in the fees and commissions that you pay us. As you will see in the following pages, different investment products have different compensation structures and accordingly, our Financial Advisors get paid more or less compensation depending on the product or service you choose. In general, the percentage of Morgan Stanleys fees and commissions we pay to our Financial Advisors (their payout rate) depends upon the type of pricing option and account you have established with us as well as the particular product you purchase. In addition, in general, the more overall revenue each Financial Advisor generates each year, the higher his or her payout rate.
There are two primary payout rates:
||Mutual Funds, Investment Advisory, Morgan Stanley ChoiceSM, Variable Annuities, Variable and Universal Life Insurance, Managed Futures, Unit Trusts, Alternative Investments, 529 Plans, Financial Planning and Personal Trust Fees, Municipal Auction Rate Securities (MARS) and Auction Rate Preferred Securities (ARPS)
||Equities, Fixed Income, Fixed Annuities, Term Life, Disability and Long-Term Care Insurance, Lending and Business Relationships
Tier I payouts range from 33% to 42%.
Tier II payouts range from 30% to 40%.
- Financial Advisors are paid at the Tier I rate for asset-based pricing as well as for the sale of the products as shown in the above table
- Financial Advisors are paid at the Tier II rate for transaction-based pricing as well as for certain transaction-based products as shown in the above table
In some cases the payout rate may be as low as 10%; there are also some instances when there is no payout; for example, for households with less than $35,000 in assets, the payout is generally zero.3
Your Financial Advisor may also be eligible for a bonus based on the total amount of revenue he or she generates each year. Additionally, Financial Advisors may receive ongoing compensation (called residuals or trails) on some investment products. All residuals or trails are paid out at the Tier I rate.
An informed and engaged client is our most valuable asset. If you would like additional information about how you pay us and how we pay your Financial Advisor, ask your Financial Advisor or Branch Manager for a copy of Commissions and Fees
. It includes:
- Commissions and fees for specific investments and services we offer
- Compensation your Financial Advisor receives on these specific investments and services
- Fees that Morgan Stanley receives from certain third parties