Former Morgan Stanley Advisor Battling to Keep Deferred Compensation Suit in Court

Posted on May 13th, 2021 at 3:27 PM
Former Morgan Stanley Advisor Battling to Keep Deferred Compensation Suit in Court

From the Desk of Jim Eccleston at Eccleston Law LLC:

Matthew Shafer filed a proposed class action targeting Morgan Stanley’s withholding of deferred compensation. The lawsuit alleges that Morgan Stanley is violating federal laws that govern vesting and anti-forfeiture rules for pension and retirement packages by withholding deferred pay when advisors transition to competing firms. 

In a motion filed on May 5, Morgan Stanley’s attorneys argue that Shafer agreed in his employment contract to settle through arbitration all disputes related to his “employment, compensation, and terms and conditions of employment.” Shafer filed an objection to Morgan Stanley’s request for arbitration on the same day. Shafer reasoned that arbitration may lead to inconsistent outcomes for former Morgan Stanley advisors if the claims were heard individually. Shafer’s attorneys also alleged that Morgan Stanley’s Compensation Incentive Plan agreements state explicitly that the “courts of New York shall have exclusive jurisdiction” of disputes arising in connection with it and participants, and that such agreements trump the employee agreements Morgan Stanley cites.

Shafer’s original complaint claimed that Morgan Stanley’s “cancellation” of around $500,000 in deferred compensation when he left Morgan Stanley in 2018 violated the Employee Retirement Incomes Security Act (ERISA) of 1974. Shafer stated, “Morgan Stanley defers for six years as much as a 15 percent ratio of advisors’ compensation if they generate more than $5 million in trailing 12-month gross revenues, and as little as a 1.5 percent ratio of it if they generate under $240,000.”

The complaint also alleges Morgan Stanley’s compensation committee breached its fiduciary duty and seeks an injunction suspending the deferred compensation’s “cancellation rule” as well as certification of the class action status. The court has not yet ruled on Shafer’s request to add the named plaintiffs or Morgan Stanley’s request to compel Shafer to arbitrate

Shafer’s suit follows a $79 million settlement in a similar class action against Wells Fargo Advisors. Before settling, Wells Fargo had argued that its deferred compensation plan qualified for an exemption from ERISA laws as a “top hat” plan available only to a “select group of management or highly compensated employees.”

Shafer’s suit states that Morgan Stanley’s deferred plan affects a “significant percentage of the relevant workforce, which far exceeds the percentage allowed under ERISA” and is not limited to highly compensated advisors.  The complaint states, “All or almost all of them participate in the FA Deferred Compensation Program because participation is mandatory and begins with the first dollar of revenue generated.” 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.


Tags: eccleston, eccleston law, morgan stanley

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Jim, Stephany and the whole team were a God send.  We felt like we were put into a situation where we had no advocate. Jim’s team came in with a strong, well laid out strategy on how to get our story heard. Where our outside compliance company had no ability to help, our Broker Dealer was impenitent, and the regulators were aggressive pursuing vague rules, Jim came like a barricade against an assault we did not understand. Though you pay member dues to be affiliated with FINRA and a B/D, you have no voice. The only thing that is truly heard in this un-level playing field is a bulldog’s bark like Jim’s. I would encourage anyone to call Jim and his team to find a real ally in the tough and complicated world of securities regulation. They are truly the best.

Greg P.


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