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 Wells, the third largest U.S. brokerage firm with about 11,000
branch-based advisers, is the last of the big U.S. firms to spell
out pay plans that influence how their brokers conduct sales and
money-gathering efforts in the coming year.
Morgan Stanley <MS.N>, Bank of America Corp's <BAC.N> Merrill Lynch
and UBS AG's <UBSN.VX> U.S. brokerage unit unveiled plans two weeks
ago that reward asset gathering, encourage brokers to work in teams
and toughened revenue targets for lower-tier advisers.
Wells has picked up on those trends, with twists.
Several brokers said the deferred bonus targets are considerably
higher than expected.
Brokers with annual revenue of $300,000 to $500,000 can earn
deferred cash of as much as 8.25 percent of that total, up from 2
percent, if they meet one of four targets tied to metrics such as
new client assets, loans and writing financial plans this year.
Brokers who bring in $2.1 million or more can get 11 percent of the
total, up from 8.5 percent.
The bonus potential, and Wells' decision to remove caps on the
amount, puts the deferred bonus awards "into orbit," said one
adviser.
"I listened to where the pain points were," David Kowach, president
of Well's branch-based private client group said in explaining how
the changes can help both top and lower-tier advisers. The deferred
compensation presents the "biggest opportunity" for brokers and
their managers, he added.
Wall Street has been steadily raising deferred compensation, seeing
it as a way to delay immediate cash payouts and to lock in employees
who might be tempted to jump to rival firms. Wells requires brokers
to remain at least five years to collect their deferred cash.
However, Danny Sarch, a headhunter for brokers, said firms are
getting more generous with the potential awards because many brokers
do not stick around for the delayed payout.
Wells Fargo Advisors also adjusted its core payment plan. Unlike
rivals that pay brokers a flat percentage of the fees and
commissions they produce, the Wells Fargo & Co <WFC.N> subsidiary
has a two-tier system that currently pays all brokers 22 percent of
the first $12,000 they bring in every month and 50 percent on
anything earned above that.
In past years, Wells has raised the hurdle for the higher payout by
$1,000 with each new pay plan. That "tax" is no longer in effect,
Kowach said.
In 2014, there will be three hurdles to the higher payout.
Low-producing brokers will have to breach $13,250 each month before
they graduate to a 50 percent payout. Mid-level ones must wait until
they hit $12,500. Top-producing brokers, however, hit the 50 percent
hurdle at $11,500, down from $12,000 this year.
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Most of Wells' cash incentives-immediate and deferred-are tied to
hitting targets related to improved revenue, creation of financial
plans for clients and growth of wealthy households.
Kowach said that, unlike most of Wells' rivals, the firm this year
is not gearing its bonuses to fee-based, rather than
commission-based, accounts.
"Transactional business is half of our revenue and represents most
of our client assets," Kowach said. "I want our people to do great
business and help clients win regardless of the compensation model."
Most brokerage firms have skewed bonuses in recent years to
fee-based accounts that generate revenue year-to-year, regardless of
how often clients trade. Commission accounts tend to veer wildly as
clients make trades in rising markets and withhold transactions when
markets fall.
In other enhancements, Wells is giving more brokers expense accounts
to entertain clients and prospects in 2014, including a token $500
amount to those who produce $300,000 to $500,000 and did not
previously qualify. Top-tier brokers can get $15,000 entertainment
accounts.
Like its rivals, Wells also has added incentives for advisers who
work on teams, and has simplified penalties for brokers who discount
commissions from its published price.
Wells also addressed its "aging broker" issue with an enhanced
road-to-retirement program. The average age of a Wells broker is 56,
and many are having a hard time finding younger brokers in their
branches that they trust to take over their "books." In 2014, Wells
will let them search wider for a successor within their geographic
regions. It also has developed a valuation analysis that lets
retirees sell their practice for as much as 1.6 times the revenue
they produced in the previous 12 months. Older brokers also can
remain at the firm for five years, up from three, after announcing
their retirement plans as the firm looks for way to help them pass
clients to younger brokers.
(Reporting by Jed Horowitz; editing by
Andre Grenon)
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