A legacy branch manager with Wells Fargo Advisors on the East Coast—let’s call him Joe—says he hasn’t had a raise in his base salary in more than a decade, despite the fact that revenues at his branch have increased tenfold, and he is now doing “about seven times the amount that I did back then.” He also says that, while profitability at the three wirehouses rose between 20 percent and 30 percent in 2011, manager compensation at his firm was cut by 35 percent the year before—and it isn’t budging.
What’s more, Joe says that his counterparts at UBS and Morgan Stanley Smith Barney assure him he is not alone. “The wirehouses are paying us just enough to sustain us,” he continues. “Many of us feel they have no real respect for the work we do.”
Early last year, both UBS and MSSB made news with changes to their manager compensation formulas (MSSB announced it would begin deferring a portion of employees’ year-end bonuses, while UBS announced a small rise in base pay for managers—and that more ‘subjective’ measures would figure it their bonuses)—changes many branch managers feared would ultimately reduce their earnings.
Spokespeople from the wirehouse firms said the firms do not discuss issues like branch manager pay with the press. However, industry insiders and expert agree that it has fallen dramatically since 2008, and continues to be on the decline for managers, many of whom are already disenchanted with the mounting demands and diminished job security of their positions. They also say things aren’t likely to improve any time soon.
Rick Peterson, who heads Spring, Tex.-based industry recruiting firm Rick Peterson and Associates, explains that all non-producing branch managers get a base salary—typically between $75,000 and $140,000 a year. And producing managers get substantially less. But base salary has little to do with anyone’s total earnings in this industry, he says.
“The rule of thumb used to be that total branch manager compensation—including bonuses—would equal about two to three percent of the manager’s total office production, including any production by assistant managers and operations people,” he says. “But, they hit the high-water mark in terms of pay four years ago. Since then, compensation has fallen drastically. Today, managers often earn less than one percent—and no higher than two percent—of their branch’s total production.”
Today, someone managing a wirehouse branch with $20 million in production can expect to earn between $150,000 and $350,000 a year, he says.
And, branch managers at every firm are facing reduced compensation, he continues, not just the wires. “Every firm is doing it a little bit differently.”
While B/Ds can quantify their earnings in variety of ways, the bottom line, says Peterson, is that with interest rates as low as they are from a profit and loss standpoint, it’s very difficult for B/Ds to make money. “I think everybody realizes this whole industry is being re-priced from the top all the way down.”
And, unhappy branch managers have little recourse, particularly when it comes to seeking greener pastures at rival firms. “The number of wirehouses is shrinking,” he continues. “And, branch managers are losing jobs on a weekly basis.”
He does, however, also note that many branch managers may have been a bit ‘over-compensated’ in the past, when times were better. “For the most part, branch managers in this industry are still well paid compared to those with similar responsibilities in other industries. If they were to move to another industry right now, for the most part, it would take them quite awhile to earn what they’re earning now.”
Bonuses
Like many in the industry, a substantial portion of branch managers’ compensation lies in their annual bonuses—an amount derived by a combination of objective and subjective measures. “Subjective measures are very important,” Peterson says. “This is where a branch manager can be rewarded for improving branch morale, overcoming legal or HR issues which were not his fault, but may have been for obstacles for his advisors. It’s a way for branch managers to be recognized for the jobs they are doing, not just the numbers.”
However, he acknowledges that it doesn’t always work out that way. “Unfortunately, the subjective portion of branch manager pay seems to have become a popularity contest in recent years.”
“The big firms play around with our bonuses,” said another wirehouse branch manager in the northeast who also asked for anonymity. “They manipulate them—and us. They’ll tell us they have a certain amount of bonus money available for branch managers who are tops in terms of production and recruiting. Then, when bonus time comes around, they say there’s less money available than they thought. So, we’ve all worked even harder thinking we’ll be rewarded, and, in the end, few actually are.
“And, it’s funny,” he continues, “the difference in numbers between the top managers and the bottom—at least in my firm—is pretty minute.”
What’s a Branch Manager to Do?
Branch managers who want to make more money need to increase their branch AUM and production. “To do that, you either need to have a good market, or to recruit new brokers with substantial assets,” Peterson says. “But, the cost of recruiting good producers is high. You don’t want to pay too much unless he’s able to bring enough of his assets with him to make it worth your while financially. And, a better market may or may not come along.”
In recent years, the wirehouses in particular had been increasing their emphasis on hiring new trainees, due largely to concerns over an aging broker population. But, trainee programs have had a relatively high expense and low success rate, says Andre Cappon, who heads the NY-based CBM Group—an international industry research and consulting firm. “Less than 20 percent of these hires, who cost as much as $300,000 to fully train, survive past year two or three of a four-year training plan,” Cappon says.
And, few would argue that it’s a lousy market for a branch manager to try and re-build a book in. “The firms made us give up our books,” said a wirehouse manager in New York. “Now, if we want to go back into production to survive, we’d have to join an existing team, or try and pick up our former clients—which is certainly no small feat.”
“I think this industry is moving to eliminate of branch managers and poor compensation is their way of doing it,” said a branch manager at MSSB in the midwest, who also asked to remain anonymous. “When leadership comes down hard on senior management, they like to point the finger at us. The goals are impossible to meet and they tell branch managers that they’re the problem. As for recourse, we’re told that, if we don’t like it, we can leave.
“I’m afraid we’re in the early stages of not just a ‘job’ that is going away but an entire industry—that being the large broker dealers,” he says.