by Miriam Rozen

November 22, 2023

Edited with comments from Sonn Law Group

A federal judge has granted Morgan Stanley’s motion to send to arbitration a putative class action claim that it violates federal law by withholding deferred compensation from brokers who move to other firms.

Morgan Stanley “demonstrated” that the advisors agreed in employment and bonus contracts to file such claims in private arbitration, U.S. District Judge Paul G. Gardephe in Manhattan wrote in a 56-page ruling on Tuesday. They also did not opt out of the wirehouse’s alternative dispute resolution program, called Convenient Access to Resolution for Employees (CARE), according to the ruling.

Sonn Law Group has been retained to handle deferred compensation claims that are now required to be brought in arbitration before FINRA. “We look forward to helping former Morgan Stanley advisors,” said Jeffrey Sonn, Esq.

In his ruling, Gardephe concluded that the ex-advisors had claims under the Employment Retirement Income Security Act (ERISA) but wrote that the plaintiffs failed to prove that those were non-arbitrable. The judge also wrote that, although his ruling prohibits the advisors from seeking to represent a class, they could still individually seek in arbitration the same damages or other relief that they had sought in court. 

Ex-Morgan Stanley advisors argue that its compensation plan violates federal laws governing vesting and anti-forfeiture rules for pension and retirement packages by withholding deferred pay when brokers move to the competition.

In September, Morgan Stanley disclosed in a letter to Gardephe that a rash of other of its ex-advisors are “piggybacking” on the class case and filing unpaid deferred compensation claims in arbitration.

Court filings details the deferred compensation—including that it can entail as much as 15% of advisors’ pay and require up to eight years to vest.

Deferred compensation is one key factor keeping brokers in their seats, recruiters and Morgan Stanley executives have said.

We appreciate that the court correctly determined these claims belong at arbitration and are reviewing other aspects of the decision,” a Morgan Stanley spokesperson said.

“Judge Gardephe found that the Morgan Stanley deferred-compensation plan is an ERISA pension plan,” Sonn said. “This means that ex Morgan Stanley advisors can bring claims to recover their deferred compensation in arbitration as vested and non-forfeitable,” said Sonn. “Our firm plans to file FINRA arbitration claims to recover the deferred compensation owed to ex Morgan Stanely financial advisors,” added Sonn.