Smith Barney plans to trim payouts for lower-end brokers next year, in an effort to counter rising costs and cull underperformers from its ranks. The new pay scale was announced to brokers internally in October and will take effect in January.
Under the new pay schedule, commissions will fall by 3 percent to 5 percent for two groups of brokers: those with six to eight years at the firm and under $250,000 in 12-month gross revenue, and those with over nine years at the firm and under $300,000 in 12-month gross revenue.
A spokeswoman confirmed the payout changes and said, “Smith Barney has one of the most attractive comp plans in the industry, and changes are made with a consistent focus on attracting, developing and retaining the best financial advisors.”
The cuts are partly meant to compensate for the extra costs the firm will incur when it begins reimbursing its brokers for earning the certified financial planner designation, she said. The firm plans to offer up to $5,000 to brokers starting next year.
But the move may also be part of an industrywide effort to shift towards bigger brokers and bigger clients. Morgan Stanley, whose retail brokerage arm lags its peers significantly in revenue per broker and profitability, cut around 1,000 underperforming brokers in August of this year, and has said it aims to focus its hiring on top producers who cater to high-net-worth clients. And Merrill Lynch has said it wants to recruit more brokers with production of $500,000 and over.
The Smith Barney spokeswoman declined to comment on how many of its 12,000 brokers will be affected by the new payout schedule.
Smith Barney reps produce less on average than their peers at other wirehouse firms, except Morgan Stanley. Year-to-date through mid-October, Smith Barney reps produced $555,000 on average, versus $726,000 at Merrill and $603,000 at UBS Wealth Management, according to Merrill Lynch research. Morgan Stanley reps produced an average $489,000. Funny thing is, the firm still outdoes its rivals in profitability—with pretax margins for the same period of 21 percent, compared with 20 percent at Merrill and 15 percent at UBS.
New Production Scale at Smith Barney
|Years at Smith Barney||Production||Payout|
|Six to eight years||$200,000 to $250,000||30%|
|Six to eight years||$175,000 to $200,000||29|
|Six to eight years||$150,000 to $175,000||27|
|Six to eight years||under $125,000||20|
|Nine years||$250,000 to $300,000||33|
|Nine years||$200,000 to $250,000||29.5|
|Nine year||$175,000 to $200,000||27|
|Nine years||$150,000 to $175,000||25|
|Nine years||$125,000 to $150,000||21|
|Nine years||below $125,000||20|