Wells Fargo Advisors Hit With Payroll Crisis
JANUARY 22, 2010, 3:41 P.M. ET.BROKER'S WORLD: Wells Fargo Advisors Hit With Payroll Crisis
By Annie Gasparro
A DOW JONES NEWSWIRES COLUMN
NEW YORK (Dow Jones)--Wells Fargo & Co. (WFC) is throwing its legacy Wachovia Securities advisers for a loop, with payroll changes that went into effect this month.
The new system will automatically withhold 25% of brokers' commissions for taxes, regardless of their tax brackets. The flat rate will be in place until 2011 for the roughly 11,000 brokers who make up Wells Fargo Advisors, the firm's traditional brokerage channel.
Wells Fargo acquired Wachovia a year ago, and didn't have a large retail brokerage until then.
"When you work for a company that big, once they make a decision on how they are going to do payroll, they aren't going to give anyone special treatment," said Lawrence Staat, partner at the Chicago-based law firm SNSFE, P.C. "I guess that's one of those cultural changes everyone talked about when Wells Fargo bought them."
Teresa Dougherty, spokeswoman for Wells Fargo Advisors, said there is a difference in the way the two legacy payroll systems operated. She said those changes were communicated to advisers throughout the integration, and the firm is working on a solution for 2011.
But this year, many brokers will face lower take-home pay from withholding too much because of the flat 25% rate--a frustration that will likely affect advisers producing less than $500,000 annually.
The average Wells Fargo adviser is in the $400,000 production range. If affected, advisers won't receive their tax refund until 2011.
Wells Fargo is offering impacted advisers a one-year loan with 3% interest, as cash-flow assistance while their money is tied up.
Brokers in tax brackets higher than 25%, which likely includes $1 million-and-up producers, have to elect to withhold more money before each pay period, or else face government penalties for withholding too little.
Once a broker's take-home pay reaches $1 million, which would only be for the few $2 million-to-$3 million producers, the flat-rate tax withholding bumps up to 35% on the part over $1 million.
"This is an integration nightmare," said a legacy Wachovia broker in the Midwest. "People thought 4Front was bad, but that was nothing compared to this."
4Front is the bonus opportunity scrutinized by advisers when it was offered in lieu of a retention package.
This adviser, who produces more than $1 million annually, said he doesn't expect Wells Fargo to revamp its whole payroll system on account of brokers grumbling.
"Unfortunately, the tail doesn't wag the dog," he said.
Michael Meissner, a tax lawyer and partner at Squire, Sanders & Dempsey L.L.P., explained that businesses use this "supplemental withholding rate," the flat 25%, for irregular compensation, such as payment from stock options or bonuses.
"Sometimes a company will use this rate [for irregular compensation] because it's mechanically easier to use a flat 25% rate and not force payroll people to recalculate" everything, he said.
Financial advisers' pay falls in to the irregular compensation category because it varies month to month based on their production.
Under Wells Fargo's new system, advisers are paid a bi-weekly "draw," and their commission checks will be processed monthly.
The draw, which is used throughout the industry, is a guaranteed weekly salary that is paid in addition to, or more often against, brokers' commissions. The draw system is used by brokerages to avoid being forced to pay advisers overtime wages.
As a result of multiple class-action lawsuits where brokers at major firms demanded overtime pay under wage and hour laws, the Department of Labor's Wage and Hour Division concluded in November 2006 that financial advisers are exempt from receiving overtime pay as long as they are paid a $445 guaranteed weekly salary minimum. Hence, the draw.
Brokers at Bank of America Corp.'s (BAC) Merrill Lynch and Morgan Stanley Smith Barney (MS) are also being moved on to new payroll systems as a result of recent mergers and acquisitions. They receive a draw and commissions, but they will not be hit with the flat 25% tax withholding.
A Morgan Stanley Smith Barney adviser in the South said he has adjusted to his new pay schedule, and as long as brokers have budgeted their cash flow well, they shouldn't have a problem with the Wells Fargo schedule.
"As a financial adviser, you shouldn't be living paycheck to paycheck, because you never know when those commissions are going to hit your bank account," the adviser said. "It's like manna from the heavens."
(Brett Philbin contributed to this article.)
(Annie Gasparro writes about financial advisers and their jobs, with a focus on the challenges brokers face as the industry moves from traditional stock brokerage to high-net-worth wealth management. She can be reached at 212-416-2244 or by email at [email protected])
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I miss A.G. Edwards. Where else do you go. I looked at all of the other full service firms and the all suck for different reasons. We had a mass exodus in my office and we have kept 50% of their accounts. I don’t think that is an option. I think the only option that makes sense is Finet. At least you get screwed a little less and you get to keep all your accounts and your retention and your 4front bonus.
[quote=agebroker5]I miss A.G. Edwards. Where else do you go. I looked at all of the other full service firms and the all suck for different reasons. We had a mass exodus in my office and we have kept 50% of their accounts. I don’t think that is an option. I think the only option that makes sense is Finet. At least you get screwed a little less and you get to keep all your accounts and your retention and your 4front bonus.[/quote]
Did you look at Stifel, and if so what did you find that "sucked" I moved a year ago, kept 90% of my accounts and haven't been happier. I think the folks who left didn't have good relationships with clients. Two of us left at the same time last year and took most of our clients. A majority came over right away in the first 2 months!
Cost me 3 grand in withholdings…not a happy camper, but not much I can do about it except take a really high draw, which I’m processing now…the draw takes the exemptions and filing status into consideration…it really sucks, i spent an entire morning out of my business day sorting out how to deal with this
[quote=oldpruguy]Cost me 3 grand in withholdings…not a happy camper, but not much I can do about it except take a really high draw, which I’m processing now…the draw takes the exemptions and filing status into consideration…it really sucks, i spent an entire morning out of my business day sorting out how to deal with this[/quote] Are you talking about the loan deal?
no, actually not eligible for that since I’m part of a profit formula…I raised my bi-weekly draw, which is treated as salary component of compensation.
How about just let you have money that is rightfully yours, let you invest it as you choose and maybe earn 10%+ on it. And not charging you 3% to have your own money. I see a class action coming soon enough.
[quote=AGEMAN][quote=oldpruguy]no, actually not eligible for that since I’m part of a profit formula…I raised my bi-weekly draw, which is treated as salary component of compensation.[/quote] Is everyone eligible to do this or just profit formula?? [/quote] My understanding is that Profit Formula advisors are not eligible for loan. I believe with Branch Manager approval you can raise your monthly draw to a level all parties could live with comfortably.
Whats this new deal about new ISG platform guys working in a family office? Getting pitched hard by a recruiter on this and cant find much info. Any Input?
Stefel and Raymond James fit the best. Raymond James caps va’s at 4% comissions which is worse than Wachovia they get paid 7% from the insurance companies and pass 4 to the brokers. At least wfc let’s us keep 6 Also both of those firms will be sold within a year or 2. I was under the impression that ag would never be sold also. Then you move and change your name again then the firm gets sold and you change names again. I will eventually move to Finet it’s the only intelligent decision keep all retention and keep all clients.
It must suck working for someone else.What kind of mickey mouse operation is Wells Fargo anyway? Seriously, I use Quickbooks for my payroll and it handles withholding for irregular pay without any problems.
You heard that the 25% w/h would be changed in the next 30 days?In wells Fargo talk that means 6 months to a year. They are offering you a loan so they can make 3% on us. In a private probably tarp related deal with the government they are loaning a big percentage of our money to the government and profiting on us.
[quote=agebroker5]You heard that the 25% w/h would be changed in the next 30 days?In wells Fargo talk that means 6 months to a year. They are offering you a loan so they can make 3% on us. In a private probably tarp related deal with the government they are loaning a big percentage of our money to the government and profiting on us.
[quote=Ferris Bueller] [quote=Indyone] It must suck working for someone else.
What kind of mickey mouse operation is Wells Fargo anyway? Seriously, I use Quickbooks for my payroll and it handles withholding for irregular pay without any problems.[/quote]
where do you buy your office toilet paper, I'm sure we'd like to know that too. Also does your auto insurance or your business insurance cover your car when the shopping carts from the Piggly Wiggly next door hit it?[/quote] Well my paper isn't bank-issue if that's what you're asking. I don't give a rats ass how you're doing either bank boy. If you don't like my posts, don't read 'em. It's pretty simple.
[quote=Ferris Bueller]The guys are Stiefel are smoking crack if they don’t think they will be sold in the next 2 years.[/quote]
Stiefel probably will be sold…not sure what biz they are in though. Stifel though probably will not…lo
We will see in 2 years, your guess is as good as mine…highly doubt it, but of course anything can happen and I am sure 50% of the insider stock will vote for the deal as well. It always makes sense to sell to the companies that you are taking market share from daily…I agree.
Bottom line…if it does happen…which I doubt…but if it does…I spent 5 years happier than I would have at the cluster I left behind. 5 years of no BS higher payout and better service for me and my clients…oh yeah and no mandatory W/H lol. If it doesn’t…then all of you folks who didn’t move because you were sure we would be sold look even stupider than you do now! I can always go Indy ans stay at SF as well…so I am not too concered with whatever the future holds here.
[quote=agebroker5]We had a mass exodus in my office and we have kept 50% of their accounts.[/quote] Every person I know that left that had good relationships with their clients kept 70%+, with many at 85%+. The ones that did 60% or less were transactional or rarely called their clients.