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On comp, regionals and indies hold wirehouses’ feet to the fire

This year, wirehouses did something memorable. They finally stopped monkeying with their payout grids.

What’s driving this change, or rather lack of change?

Competitive pressures.

Let me explain. Normally, right around Thanksgiving each year, major wirehouses rejigger comp grids and tweak criteria for deferred compensation and award programs. It’s a yearly game of chicken as wirehouse executives wager that although advisors may bellyache and stamp their feet, not that many will actually jump ship over a minor move of the goalposts. Even if some advisors hit the bid elsewhere, by the following year the entire matter will be largely forgotten and they will have instituted a policy that is accretive to the firm’s bottom line.

Our annual analysis of starting payouts for wirehouse, regional and national brokerage firms.
May 1

This year is different. Wirehouse executives understand that any whacks to their grids could be like putting their hands on the proverbial third rail. They might get scorched big time.

Most advisors who leave wirehouses are signing on with regional and independent firms. So far this year, more than 470 advisors overseeing $66 billion in assets have exited the wirehouses to join rival firms, according to FINRA BrokerCheck records and hiring data analyzed by Financial Planning. At regional firms, payouts are higher than those of wirehouses and advisor compensation grids are rarely revised. Advisors who join regionals can be confident that payouts will remain in place for the foreseeable future. They are not subject to the same yearly payout tweaks as their wirehouse brethren. Independent advisors of course can control their expenses and typically net somewhere between 60% and 65% of gross revenues. The fact that many advisors are gravitating to venues in which payouts are more predictable and less subject to ever shifting corporate diktats has not been lost on wirehouse executives. Regionals and independents are now their primary rivals — not other wirehouses.

Advisor recruiting. Wirehouse, indie, regional

Let’s briefly review the wirehouse payout changes for 2019 that have been reported thus far (Wells Fargo has yet to reveal its compensation plan for next year.)

UBS announced that its advisor compensation grid will remain unchanged. Morgan Stanley is keeping its existing grid in place and has added account-based awards for advisors who increase financial planning, banking services and net new assets.

Merrill Lynch shaved off 3% of monthly production credits from payment on its grid and adjusted its carrot-and-stick approach to growth in new households. It claims that the growth awards will enable advisors to increase their take home pay. It’s notable that even when Merrill chopped advisor pay, it was careful to leave the grid intact while doing so.

Put another way, major wirehouses are leaving their grids untouched because they know that their advisors are comparison shopping with regionals and independent firms. After years of losing some of their most productive advisors because of these annual payout tweaks, perhaps they’ve finally gotten the message that this strategy is counterproductive.

Wirehouse payouts are not likely to be reduced because the superior grids of regional and independent firms are now the benchmarks against which wirehouse advisors evaluate their own payouts.

Instead, brokers can expect the firms to assemble more carrots and sticks intended to incentivize the types of advisor behaviors of which they’d like to see more of. Executives may ask advisors for stronger asset growth or more client acquisition. But an era of perennial grid tweaking may be behind us.

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