In last week’s e-Monitor Update, we discussed the introduction of Morgan Stanley’s Choice Select program - the firm’s newest pricing program for equity and option trades. It was not only the innovation of the program that struck us, but also the fact that it was an “old-school” full-service firm that introduced it.

What makes Choice Select so different? The key benefit is its deferred debit of commissions and its sliding scale. Whereas brokerage clients normally pay a commission on a trade-by-trade basis, Choice Select clients at Morgan Stanley don’t pay a commission at the time they place each trade. Rather, they are billed quarterly for all of the commissions that were generated from the preceding quarter’s trading. In effect, this seems to us to be like a charge card for trading commissions. Commissions are on a sliding scale based on total principal volume (total purchase or sale prices) of trading - more trading means lower marginal commissions.

We also noticed that the name of this new pricing program - Choice Select - bears a striking resemblance to the firm’s former Choice wrap-fee account. As most of readers are aware, Morgan Stanley stopped offering the Choice account amid the industry-wide removal of fee-based brokerage accounts. Although the new pricing program is not fee-based (actual trading commissions are charged), the quarterly delayed debit of commissions is similar to the quarterly fee assessment within the old Choice accounts. Perhaps Morgan Stanley introduced this new pricing program to serve as a “happy medium” between the outlawed wrap account and a standard commission-based account.

Morgan Stanley seems to have taken the concept of a charge card (like a traditional American Express card with interest free charges) and applied it to trading commissions. We would have expected an active trader firm to be the one to think of a plan like this. Kudos to Morgan Stanley for breaking the mold and stepping out of the established full-service model to introduce a novel pricing structure that is especially beneficial to active traders. We will be curious to see if similar programs start to appear at other firms.