Morgan Stanley stacks up wins over deferred comp

For the second time in as many months, Morgan Stanley claimed a victory in its fight to deny deferred compensation to advisors who left for rival firms.

A three-member Financial Industry Regulatory Authority arbitration panel decided last week to deny roughly $1.2 million to Jeffrey Zapoleon, who said he was still owed after leaving Morgan Stanley for Wells Fargo in 2019. Zapoleon, now at Rockefeller Financial, is just one among many brokers arguing in FINRA arbitration that they can't be denied so-called deferred compensation just because they've decided to change firms.

The victory comes after Morgan Stanley last month beat back claims brought initially by seven former advisors who had left for other firms. 

Morgan Stanley and other wealth managers often use deferred compensation as an incentive to reward advisors who stick around for set periods of time. But various claimants have instead argued the payments are akin to pension benefits protected by federal law.

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Morgan Stanley has begun to turn the tide in its disputes over deferred comp. Before its win last month, it had scored a victory in June against eight former brokers seeking $854,636 in deferred comp. 

Last April, Morgan Stanley saw a different outcome — it was ordered by an arbitration panel to pay more than $3 million claimed by seven advisors who left. Likewise, two months later it was told to pay $1.1 million to a pair of ex-advisors.

"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 said. "That is not a pension plan."

As is usual in FINRA arbitration cases, the three-member panel that handed down a decision last week over Zapoleon's claims didn't go into its reasons. Many claimants seeking deferred comp have grounded arguments in the federal Employee Retirement Income Security Act of 1974, which provides legal protections for retirement benefits.

Judge Paul Gardephe, of the U.S. district court in New York, seemed to add weight to those contentions in a ruling in November finding that Morgan Stanley's deferred comp polices in fact do fall under ERISA. But court opinions aren't binding precedents in FINRA arbitration cases.