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Wells Fargo 2016 Comp Plan Pushes FAs to Give Away Small Accounts

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Wells Fargo Advisors (WFC) is keeping changes to its 2016 compensation to a minimum. It is, however, doing all it can to get advisors to clients with less than $65,000 in assets off their books and handled by other professionals at the company.

“This is our third year of keeping things pretty much the same, because we’ve heard from FAs that’s how they want it,” the company said in a statement. “In fact, in 2016 bonuses will be awarded to FAs with 75% of their client households at $250,000.”

Wells Fargo aims to have smaller accounts managed by financial relationship advisors — advisor trainees who have passed their Series 7 exams and are working in wealth-management and brokerage branch offices. “Unlike what some other firms are doing with smaller accounts, this is not a mandate to relinquish smaller accounts; FAs have the option and will receive compensation [for transferring them],” the firm explained.

Through deferred compensation, advisors who “give away households” will receive an amount that is either equal to gross trailing 12-month fees and commissions in 2015 or 40 basis points of the account.

“Advisors get a full payout on trailing fees and commission for mutual funds, regardless of the household size; after a household is on the books for more than 12 months, advisors are paid 22% until the account is greater than $65,000,” according to Wells Fargo.

Transferring small accounts “allows smaller households to receive more attention and helps to cultivate and grow these relationships” and “frees FAs to focus on larger households where they want to spend a majority of their time,” the wirehouse said in the statement.

Major changes to Wells Fargo Advisors’ 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.  

Beginning in 2015, advisors with yearly production of $400,000 and up were able to lower the 22% compensation hurdle by meeting other objectives, such as producing revenue growth of 15% or $150,000, having 60% of client assets in fee-based advisory accounts or 80% of their monthly fees and commissions tied to fee-based advisory accounts, and having lending credits of $6,000 or more.

For 2016, deferred-compensation best practices payouts are tied to $10 million in advisory asset flows, $8,000 in lending credits and having 75% of client households in the $250,000 asset level or higher. Reps get certain awards for meeting some of the criteria, while those who meet all three of these targets are eligible for premium awards.

Wells Fargo struck an exclusive recruiting deal with Credit Suisse involving about 300 reps in October. However, some of these advisors have been departing for rivals like UBS (UBS), which just recruited five of them with $1.1 billion in client assets; UBS also nabbed three Wells Fargo reps with $1.1 billion over the past few weeks. (In mid-November, UBS added four teams in Texas from Credit Suisse with $3.6 billion in client assets.)  

Other Wirehouse Comp News

Morgan Stanley is emphasizing growth in its private bank operations, and its 2016 compensation plan for the firm’s 15,800-plus advisors reflects this strategy.

In the third quarter of 2015, client loans made through Morgan Stanley advisors totaled $61 billion, up 5% from the prior quarter and up 27% from last year. (In the same period, fee-based asset flows declined to $7.7 billion vs. $13.9 billion sequentially but rose from $6.5 billion a year earlier.)

To further boost loans and other banking business, the wealth unit is rolling out a new incentive award. Advisors can receive $5,000 to $50,000 a year for growth in clients who are “cash management engaged.”

To be eligible for this new bonus, advisors must have five new clients with an average daily cash balance of $50,000 or with $5,000 a month in direct deposits. In addition, they need to show aggregate growth in their total cash-deposit balances of $125,000 for 2016.

In addition, these clients must use two out of five bank payment mechanisms (which include debit cards, online bill payment, Morgan Stanley American Express Cards, check writing and ACH transfers). Clients must meet these standards for three consecutive months in 2016, and advisors must demonstrate that they are broadening their client relationships on the banking side. Advisors’ support staffers and associates can receive between $1,200 and $12,500 for their efforts to grow bank programs.

The wirehouse, which is led by James Gorman, says it has made no changes to its payout grid, which ranges from 28% to 55.5% of compensable revenue. Deferred compensation remains the same in 2016 at 8.5% for the average producer.

Merrill Lynch has kept its pay grid pretty consistent since 2009. But for 2016, the wirehouse unleashed a new grid for its 14,563 financial advisors.

The biggest change is a jump of $50,000 in the proposed payout grid ranges for fees and commissions of advisors with yearly production of less than $1.5 million. This should likely impact a number of advisors in the Thundering Herd — namely those producing at levels that are in the lower end of the 2015 grid ranges; in Q3’15, the average yearly production level for Merrill Lynch advisors was $1 million.

Advisors who had fees and commissions of about $400,000 to $600,000 and received cash payouts of 40% in 2015, for instance, will need to produce $450,000 to $650,000 in 2016 to maintain the same payout level. Thus, a $400,000 producing FA who couldn’t make the jump to $450,000 in production would make 5% less cash in 2016 — $152,000 vs. $160,000 in 2015.

(Merrill’s 2016 grid includes cash payouts of 34% of production to those reps bringing in yearly fees and commissions of under $250,000; 35% for those producing between $250,000 and $350,000; 38% for the $350,000-$450,000 range; 40% for $450,000-$650,000; 41% for $650,000-$850,000, 42% for $850,000-$1.05 million, and 43% for $1.05 million-$1.5 million.)

To earn a strategic growth award, advisors need to boost their net client assets by 7% in 2016, down from 10% in 2015. However, the size of this award is being reduced next year: For advisors bringing in from $10 million to $50 million in new assets, for instance, the award is 0.15% of the amount brought in, compared with 0.20% last year.

Each advisor — rather than each team in ’15 — will need to make one referral to another part of Bank of America to avoid a 1% grid reduction, though the referral does not have to lead to an actual product sale, such as a loan.

As for long-term awards, these will be less tied to corporate stock next year, moving down to 25% of an award from 50%. Long-term awards range from 2.5% of production for advisors in the $350,000-$450,000 range of yearly fees and commissions to 5% for those in the $1.05 million-$1.50 million range, for instance.

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