For the second time in a year, Bank of America's brokerage unit, BA Investment Services, is experimenting with a new compensation plan for its 500-plus brokers in the Western United States. Called a "structured program" by company officials at the San Francisco-based bank, BofA's plan includes a base salary and incentives and appears to buck the trend of bank brokerages offering more aggressive commissions to attract wirehouse reps.
"In the brokerage business, most compensation plans have been commission-driven," acknowledges Frances Kimbrough, national business development director for BA Investment Services [BAIS]. "Our sales staff is not paid on commission, but paid on adding value, managing assets and matching client profiles."
Citing proprietary reasons, Kimbrough would not provide specifics of the new program implemented in April, but says the plan is already luring top-producers both from within and outside bank brokerage.
As of press time in late April, however, some bank reps were still trying to understand the new program and calculate its impact on their bottomline. One BofA rep says it may amount to a "golden handcuff." He figures his net pay will be cut initially by as much as 10% to15%, but could increase over time with the same production. Reps who do most of their business in a certain product such as annuities, will be most affected, he says.
"Bank of America wants the public to feel comfortable here," the rep says. "They've made it so the broker won't be incented to suggest any particular product. They want to level out the pay. For clients, it's a nice step, but for brokers, it's a significant reduction in pay."
In a similar move last June, BAIS shifted from a straight commission payout to a salary plan. Some brokers left the program at that time.
"They wanted to advertise to the public that advisers are paid on a salary," says a former BAIS rep now at Edward Jones. "[But]the market is willing to pay us a 40% to 50% payout. With a salary, I lost ambition to get up in the morning and go to work. You can go in and work real hard or take a vacation and get paid the same. The incentive and motivation are gone."
Industry analysts say bank brokerages have struggled to develop the ideal compensation plan, with some aspiring to be just like a wirehouse or regional, and others, like BofA, taking different approaches.
"BofA is trying to develop something that's uniquely bank-like ... and develop a distribution method that wirehouses can't compete with," says Ken Kehrer, a bank brokerage analyst in Princeton, N.J.
Kehrer adds that while bank brokerage payout has been increasing, it still lags traditional brokerages overall. Banks averaged around 34% payout in recent years, while traditional brokerages averaged nearly 39%, according to 1996 figures from the Securities Industry Association. Early results from '97, however, show some banks averaging up to a 41% payout, Kehrer says.
Meanwhile, another brokerage, BT Alex Brown in Baltimore, denies published reports that it revamped its compensation plan to a salary and bonus program following last year's merger with Bankers Trust. Tim Schweitzer, private client division head, says the firm has kept its traditional grid, which starts at 30% and expands to 49.5%.
"Nothing has changed at BT Alex. Brown," he says, adding that Bankers Trust has 60 salespeople who are on a salary plus bonus. BT Alex Brown has 430 retail brokers in 19 offices predominantly on the East Coast but with offices in San Francisco, Chicago and Atlanta.
Another brokerage program recently acquired by a bank is experimenting with increased recruiting compensation. According to a manager's memo obtained by RR, Wheat First Union is offering a transition bonus over five years instead of the usual up-front forgivable loan. The program is available to brokers joining Wheat First Union by July 31, 1998, and completing their transfer by Sept. 30. Reps still have the option of taking a traditional forgivable up-front loan but now may opt to receive an annual bonus over five years that could give them more than double the payout.