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Practice Management > Compensation and Fees

Smith Barney Shares New '08 Comp Plan

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Smith Barney started the year with the return of Sallie Krawcheck. The re-tapped head of Citigroup’s global wealth management divisions pledged to focus on several key issues, including compensation.

In October, executives at the brokerage explained what the tweaks would look like. Highlights of the new plan include grid payouts for all production, an end to the limited payout of 20 percent on the first $5,000, and improvements in grid payouts for FAs producing more than $300,000.

FAs producing $300,000-$499,999 can earn 0.5 percent of grid gross production through the investment choice/deferred-compensation plan; those at or above $500,000 can earn 3.5-8 percent on the plan. Non-grid payouts of 3 percent are awarded if gross production is above $500,000.

Total potential earnings, including those from the capital-accumulation program, for brokers in the $300,000-$349,999 production range are 40.50-42.75 percent. For those at $500,000-$749,999, the potential earnings are 47.75-51.00 percent. In the quarter ended June 30, Smith Barney added $47 billion in client assets, 686 financial advisors and 79 branches via the consolidation of Citicorp Investment Services.

It reported the inclusion of nearly 15,000 FAs, or 14,998, an increase of 14 percent year over year. In the first quarter, it tallied about 13,000 brokers. Average trailing-12-months production stood at $748,000 in June, an increase of 25 percent year over year.

Total client AUM is $1.6 trillion, up 37 percent vs. the same period in 2006. Fee-based AUM is roughly $450 billion. In the second quarter, Smith Barney experienced net outflows of $3 billion.

Revenues of $2.6 trillion were driven by a roughly 20 percent increase in fee-based and net interest revenues. Transactional revenues increased nearly 50 percent. Revenues also reflect increased ownership of Nikko Cordial Corporation in Japan.

Expenses increased 27 percent to about $2.1 billion, while net income grew 35 percent to $321 million, driven by increased business volumes and the impact of acquisitions. This represents a pre-tax profit margin of 21 percent vs. 18 percent in the second quarter of 2006 and 23 percent in the first quarter of 2007.

In late September, Citigroup said issues related to mortgage-backed securities, credit markets and the consumer-credit environment should negatively affect its third-quarter results. It expects to report a decline in net income of about 60 percent.

Janet Levaux is the managing editor of Research; reach her at [email protected].


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