Financial advisors at the wirehouse firms are facing more complex compensation plans in 2015, compensation experts say.
“It is becoming close to being like a carnival game—you have to knock down three cans to get the top-shelf prize,” said Andy Tasnady of Tasnady Associates in Port Washington, New York, in an interview.
“Overall, the [wirehouse] plans are getting more complex, especially around deferred bonuses,” Tasnady explained. “There are sharply designed combinations for shaping awards and associated behaviors—with lots of curves and combinations.”
In general, the core pay grids are not being tweaked very much, he notes.
In the case of Wells Fargo Advisors, major changes to its core grid took place in 2014, when three pay “hurdles” were introduced. Advisors are paid 22% of the first $11,500, $12,500 or $13,250 of fees and commissions they earn each month; once they have topped these hurdles—which are based on performance, client experience and growth—the FAs get 50% payouts.
New for 2015 are adjustments to Wells Fargo’s hurdles. Advisors can lower the 22% compensation hurdle they have to jump over by achieving other objectives, such as revenue growth of 15% or $150,000.
Also, advisors can boost their client-experience results by having 60% of client assets in fee-based advisory accounts or 80% of their monthly fees and commissions tied to fee-based advisory accounts. In addition, lending credits of $6,000 and up will give them higher client-experience results.
As for deferred compensation, Wells Fargo says it has eliminated the rule that advisors have to hit two of three or three of three best-practice goals in order to qualify for best-practice awards. However, advisors can get a bigger best-practice award if they meet all three targets.
Advisors in the $350,000–$499,000 production tier, for instance, can earn $5,000 when they bring in $5 million in net new fee-based advisory flows. They can also receive $5,000 for hitting $6,000 in lending credits and $5,000 for net new assets of $5 million and up. But if reps achieve all three of these best-practice goals, their best-practice award jumps to $25,000.
At rival UBS, for instance, advisors have a lower threshold for net new asset awards in 2015—$1 million vs. $5 million in 2014. But to get this award, UBS reps must bring in a new client relationship of $1 million or higher, or $10 million in total net new assets.
Other changes at Wells Fargo include a higher minimum ticket charge of $125 for advisors to earn a commission, up from $95 in 2014. The bank also rolled out an estate protection program for advisors, introduced a length-of-service award and dropped a bonus tied to new households (or clients).
“Beyond raising the ticket charge, I’d say the biggest shift is that they made the payouts for lower performance lower and the payouts for higher performance higher, and if you hit all [the performance targets] slightly higher still,” Tasnady said. “They are making the payout curve a bit steeper—which means higher risk and reward for advisors.”
Plans at UBS
UBS, which has about 7,000 advisors in the Americas, aims to further boost results that recently have put it ahead of rivals in terms of annual fees & commissions (or production). Yearly advisor production stood at $1.079 million in third-quarter 2014, up 1% from $1.068 million in second-quarter 2014 and up 9% from $994,000 in 3Q’13.
“There are no changes to the standard production grid. It remains competitive and is in line with our focus on quality advisors,” the company said in a memo. The standard production bonuses range from 28% to 45% of fees and commissions.
Reps bringing in up to $249,000 of production have payouts of 28%–30%; those with $250,000 to $624,999 get 33%–39%, and FAs producing $625,000 and more receive 41%–45%.
The firm says its wealth-management award has been “significantly enhanced” to encourage advisors to grow their practice. Wealth-management production will include fees tied to advisory services, insurance, lending and planning in 2015, with bonuses of up to 6% of production.
Those advisors who have fees and commissions tied to these products and services that represent between 5% and 24.99% of their total production will get an extra bonus of 0.50%–1% of their wealth-management sales.
For UBS reps who make between 25% and 49.99% of their total production in wealth-management products and services, the wealth-management bonus will range from 1.5%–3.5% of this production. Advisors with wealth-management sales that represent 50% or more of their total production will get a wealth-management bonus worth 4%–6% of these fees & commissions.
“The 6% level is the most I have seen from any major firm, in terms of what is being paid on an ongoing basis for the most-successful advisors,” said Tasnady. “This is a bonus that will be paid not just on growth [over last year] but on the overall business.”
UBS’ enhancement could help its advisors continue to grow lending, for instance, which is an area that many firms are promoting, the compensation expert adds.