Morgan Stanley unveiled a new compensation plan for brokers that rewards fee-based business and penalizes transactional business. The plan, announced to brokers in mid-September, takes effect in January 2003.

It calls for a 2 percent raise in fee-based business and a 1 percent cut for transactional business. The firm also told brokers that it wouldn't pay reps anything on transactions of $85 or less.

Now, brokers producing $600,000 a year receive a payout of 39 percent no matter where the revenue comes from. Under the new system, brokers receive 41 percent on asset-based revenue, but the payout drops to 38 percent for transactions.

The new comp policy does not affect all brokers equally. Those earning $800,000 or more a year in transaction revenue won't see their payout affected.

“The 1 percent drop in transactional business doesn't bother me as much as not paying on trades of $85 or less,” says a Morgan broker. “Because of this, they'll see a lot of clients not being taken care of. Maybe that's the firm's intention — getting rid of guys who do small trades. My belief is that those small trades amount to a lot more than they think.”

Morgan is discouraging small accounts in another way, too. The payout for “small households,” or accounts with less than $25,000 in assets, will be just 30 percent for fee-based products and 20 percent for transaction business. A Morgan Stanley spokesman declined to comment.

This change follows similar initiatives from Merrill Lynch and Prudential Securities, where smaller accounts are relegated to service centers rather than individual brokers.