Investment advisers are usually rewarded under compensation plans under which they receive commissions for buying and selling securities. Those plans resulted in problems with churning and steering clients into Morgan Stanley investment vehicles, under which the commissions were higher. Now the focus will be on the amount of assets the advisers bring into the company as well as the clients’ use of Morgan Stanley banking and lending services. The theory is that being able to see the clients’ full financial picture (banking, lending, and investments),will give advisers a better views of needs and possibilities. A side benefit is that Morgan Stanley will have 3 potential streams of revenue from clients: banking fees to mortgage interest and a new focus on asset management and debt service for their clients.
Time will tell, but steering away from commissions may get at the root cause of some bad investment adviser behaviors.