Coronavirus crimps advisor pay at wirehouses and other BDs
When I started covering the wealth management beat six years ago as a cub reporter, my first assignment was a doozy: write the annual compensation report for wirehouse and regional BD advisors.
It was a complex topic for a newbie, akin to taking down a grizzly bear with a BB gun on your first hunting trip.
Since then, advisor compensation has not gotten simpler. If anything, it’s gotten messier. The latest twist? The coronavirus.
Whatever compensation changes that were going into effect this year have been swamped by pandemic’s economic fallout, says compensation consultant Andy Tasnady, who helped prepare this year’s analysis. “People who were making $400,000 are going to make $300,000.”
For years, firms have pivoted into fee-based business, touting it as a steady income stream. “Everyone annuitized their business,” Tasnady says. “Markets go up, your income goes up.”
But following the virus’ outbreak, markets tanked and have been topsy-turvy for weeks.
Client assets took a hit at nearly every firm on the Street for the first quarter. Wealth management assets fell 3% at Raymond James, 7.8% at Stifel Financial and 13% at Wells Fargo, according to company earnings reports. The drops at Raymond James and Stifel are particularly notable given that aggressive recruiting strategies have been boosting both headcount and AUM at those companies in recent years.
It’s also been a challenging time for financial advisors who have been inundated with client calls while working remotely and potentially dealing with quarantines. Brokerages such as Morgan Stanley, Wells Fargo and RBC have postponed some amendments to their 2020 compensation plans.
The economic pain caused by the pandemic undercuts the rationale for a grid stretch,” Tasnady says.
Morgan Stanley had intended to make several changes to its 2020 compensation plan, including a grid stretch that would have increased thresholds below the $5 million mark by approximately 10%. But in March executives put those changes on ice in recognition of the “enormous challenges” advisors are facing. Now, the changes won’t take effect until Oct. 1.
Advisors at Wells Fargo, meanwhile, were facing a tightening of the company’s pay policy on small accounts. Under its 2020 comp plan, for households under $250,000, the firm’s advisors are paid a flat 20% rate. Previously, it was a flat rate for households under $100,000.
But, like Morgan Stanley, Wells Fargo adjusted course to provide advisors some relief. The firm says it will now calculate small household AUM using either its current value or its value as of Dec. 31, 2019 — whichever is higher. Wells Fargo says it will use this formula through the end of 2020. Its compensation grid remains untouched.
RBC also suspended its small balance household compensation policy for all households that fell below $100,000 in value after March 1, 2020, a spokeswoman says.
Both moves temporarily freeze a trend of brokerages penalizing payouts on small accounts in order to encourage advisors to work with larger clients.
Advisors are likely heartened by the welcome relief these policy changes provide. But in the interim, two things are certain. First, these temporary changes are just that: temporary. Second, firms are likely to put off further big transformations of their pay plans in light of this year’s black swan event.
Don’t expect a lot of “firms to make compensation cuts in the near term,” Tasnady says.