Raymond James says it is changing its compensation grid for employee advisors starting Sept. 25, when its next fiscal year begins.
The majority of the unit’s 2,500-plus registered reps — almost three-quarters, who have trailing-12-month fees and commissions of $350,000 and up — will see a payout drop of about 100 basis points, or 1%, while those with lower production will experience a decline of 200 to 400 basis points, or 2% to 4%, according to Tash Elwyn, head of Raymond James & Associates, which includes Alex. Brown.
“It’s big news when a national firm like Raymond James makes any changes to its payout grid, because it’s so unusual,” said Mark Elzweig, an executive search consultant and head of Elzweig & Co. in New York, which works with Raymond James.
For advisors with trailing-12-month production over $300,000, “This represents the first time in nearly two decades … to have a modification to their payouts,” Elwyn said in an interview.
In 2013, Raymond James changed how it paid employee advisors by moving to a product-neutral grid. “That change did not impact what was paid but how it was paid,” the executive explained.
“This was cost-neutral to the firm, and advisor compensation in the aggregate actually increased a bit as a result of that move to product neutrality,” he added.
The firm is making the move because in recent years, its costs for technology and other areas “have increased significantly,” according to Elwyn, “to help advisors better service clients and grow their practices.
In addition, he adds, it is investing in “more in-home and back-office associates and support in the field and so forth,” he explained.
Like other broker-dealers in the business, the current regulatory and legal environment — including the new Department of Labor fiduciary standard — also is affecting Raymond James’ spending patterns. On the upside, though, the firm says it is also spending more due to “overall higher average productivity of advisors and related higher compensation costs.”
According to Elwyn, “This change is intended to be as balanced as it possibly could be” to keep the firm’s comp plans “competitive and fair,” while letting the firm have the financial resources it needs “to be able to make important investments that support advisors and allow them to grow their respective businesses.”
Input from both advisors and branch managers was considered as part of the process, both formally and informally.
“Also, we did explicitly mention [the upcoming changes] in our [fiscal] year-end communications last September …,” Elwyn said. “So not only was there a lot of transparency, there were also discussions, collaboration and a lot of lead time versus some of our competitors, who frequently make annual changes with little to no lead time.”
Competing firms, like some of the wirehouses, “change it year after year, and it’s so complicated versus Raymond James’ approach which is so simple,” said Danny Sarch, head of Leitner Sarch Consultants, in an interview.
“This is one reason, the firm is so successful at attracting quality advisors,” said the recruiter, who counts Raymond James as a client.
According to Elwyn, more payout changes are not on the horizon. “Our guiding principal is that any compensation changes are made in a balanced and fair manner and made infrequently,” he said.
At least one recruiter sees this plan as one the firm probably will follow. “When a firm changes its payout once every 20 years or so, you can have confidence that it’s not likely to be a regular event,” Elzweig explained.
As for its independent channel, Raymond James Financial Services, the firm says it is in the process of “modifying its branch payout structure over the coming months;” this move is tied to the DOL’s fiduciary rule conflict of interest provisions “and other evolving regulatory expectations.”
RJFS, like Raymond James & Associates, has not significantly modified payouts “in more than two decades,” the business says.
The changes at the independent channel “were finalized only after receiving input from branch owners, considering potential impacts to existing branches and reviewing the competitive landscape,” according to a statement. “While some firms are responding to the new regulations by limiting financial advisors’ and clients’ investment options and account types, Raymond James’ focus remains on preserving flexibility and choice for advisors and their clients while complying with the DOL rule’s requirements.”
Rival independent broker-dealers have been making changes of their own, of course.
In June, LPL Financial told its reps that it was moving to end a general securities bonus tied to the amount of individual stocks and fixed-income securities that an advisor traded.
— Check out How Morgan Stanley Is Changing Its Advisor Business M.odel on ThinkAdvisor.