Salomon Smith Barney has informed its brokers that it has eliminated bonus payments on annuity trails, Registered Rep. magazine has learned.
The announcement on Tuesday by Paul Underwood, the firm’s director of the Private Client Division, has upset brokers, particularly since the firm’s “philosophy has been to create an ongoing trailing revenue source,” according to an East Coast-based rep from the firm.
“It is an extreme example of bad faith to encourage us to do annuity business and opt for the low upfront high trail payout and then yank the bonus away from us,” the rep says. “It’s a 180-degree turn in the philosophy of building ongoing fee based business.”
A West Coast-based rep says the firm’s division product manager for annuities and mutual funds has received “many” complaints from brokers, “and he says he’s going to see what can be changed--if anything.”
A SSB spokesperson has not returned a phone call to provide a comment on the controversy.
Under Smith Barney’s 2001 production compensation bonus annuity scale, brokers received a 5% bonus on annuity production of $35,000-$75,000 (gross commission, not net); 7.5% bonus on production of $75,000-$125,000; 12.5% bonus on $125,000-$250,000; and 20% on production of $250,000+. (Brokers producing less than $35,000 do not receive a bonus.)
By eliminating the bonus on trails, a broker producing $125,000 to $150,000 in annuities will see their gross commission slashed by $12,500 (12%).
“It was an insult when they whacked us last year [reducing net payout on gross production from 48% to 44%],” says a SSB producer from the South. “Then they cancelled club trips this year to cut costs. After Sept. 11, they cut subsequent trips, saying people were afraid to travel when they should have been honest about it and said it was strictly cost cutting. Now this. They’re sending mixed signals and showing bad faith.”