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Wirehouses Dangle New Carrots, Small Sticks In 2013

Wirehouses Dangle New Carrots, Small Sticks In 2013

2013 Pay Plans Up the Bar for Payouts, Rewards For New Business

Across the board, all four major wirehouses tweaked their compensation plans for the upcoming year; In some cases, they are upping the bar to earn payouts and putting greater emphasis on incentives to gain new, richer clients.

Wells Fargo most recently released details of their 2013 plan on Thursday. Advisors will have to meet a $12,000 monthly production minimum, up from $11,000 in 2012. The firm has also rolled out a new client award program for 2013 in addition to its traditional long-term deferred compensation award, said Wells Fargo spokeswoman Erica S. Van Ross.

“This is the largest potential award we’ve ever had in our compensation plan and is sizeable enough to trump the hurdle change and provide financial advisors with real upside potential in 2013,” Van Ross said.

To qualify, advisors must achieve the net asset flows target or by obtain new clients and can potentially earn up to $100,000. Advisors also have the option to receive the total value of their acquisition award and their traditional deferred compensation award paid upfront in cash in the form of a loan and bonus structure.

“The firms use compensation plans to encourage certain behaviors” said Leitner Sarch Consultants president Danny Sarch, but added that the firms are all scared to make dramatic changes, pointing to the wirehouses’ lack of any grid changes.

Like Wells Fargo Advisors, Merrill LynchUBS and Morgan Stanley also recently updated compensation awards to incentivize growth.  Specifically, Morgan Stanley’s growth award will reward advisors between 2% and 5% of grid revenue with no maximum, a firm official said, calling the program the “most lucrative ever offered at Morgan Stanley and richest on the Street.”

“The plans are engineered to gain bigger clients,” said Aite Group research director Alois Pirker, pointing to Merrill's decision to keep in place its $250,000 minimum client account size standard introduced last year. Ultimately, large growth at wirehouses comes from new assets, he added.  

Morgan Stanley also rolled out a new stock option for advisors and branch mangers who have been with the firm for at least five hears and have $400,00 in gross revenue.

Eligible advisors are able to invest up to 25% of pre-tax earnings or $250,000, receiving 20% bonus shares, while those in the Chairman’s Club receive 25% bonus shares, the official said.

The plan allows for basic shares to vest immediately, with distribution set for April 2016, while bonus shares are both vested and distributed in April 2016, according to Morgan Stanley.

“It’s another way to hold the brokers,” said Michael King, president of recruiting firm Michael King Associates. He added that although the offer could be seen as a form of “golden handcuffs,” it was a smart move by Morgan Stanley and a good incentive to have for interested advisors.

The stock option—which Morgan Stanley said was rolled out after advisors requested an equity ownership opportunity—seemed especially targeted toward Smith Barney legacy advisors, said Michael Terrana, president of the Terrana Group.

“This sounds like something they might want to take advantage of,” Terrana said, adding that the stock option was a way for Morgan Stanley to offer a positive incentive for advisors to stick with the firm. 

Terrana also pointed out that while there is a three year vesting period for the stock, it was much more reasonable than many of the time period for most retention bonuses.

Pirker agreed, adding that the stock option was a positive way to deter advisors from exploring other options, including going independent.  “Ultimately the lure of the independent practice is owning a piece of the firm,” he said.

The 2013 compensation plans also seemed to be designed to grow the wirehouses’ footprint in the wealth management sector, King explained, saying that the plans also seemed to be attempting to reduce the number of low-end producers.

For example, Morgan Stanley cut revenue bonuses by two percentage points to make way for the growth bonuses. “If you don’t show growth, you’re missing out on part of the compensation,” Pirker explained.

“All the firms want to be wealth management focused,” King said, but warned that there was only so much of the “pie” to go around.

But as a recruiting tool, recruiters and analysts agreed that while the plans may help slightly with the firms’ marketplace images, they did not dramatically change the firms’ compensation standards.

“If an advisor is considering going to another traditional firm...payout is one of the factors to consider but not the most important,” said Mindy Diamond, President of Diamond Consultants.

“Because [the wirehouses] tinker so often, it becomes foolhardy to make a decision based on something that changes almost annually,” Sarch added.

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