An interesting study was released this week by SourceMedia detailing advisor compensation plans for the $2 million producer. The study also included comparative reporting on the top compensation packages found at wirehouse, regional, and national firms. While total compensation for these leading advisors came in between $980,000 and $1.156 million regardless of the firm, the telling tale was in how that compensation broke down – particularly at the wirehouses. The SourceMedia study outlined both cash grid and deferred compensation to arrive at the total compensation number for advisors at each firm. What is interesting in the wirehouses is that the numbers break down into a tale of two strategies – either large up front pay day with minimal deferred compensation or lower pay day and substantial deferred compensation.
Leading the upfront pay day with minimal deferred compensation pack, according to the SourceMedia study, is Wells Fargo at $955,480 cash grid and $95,650 deferred compensation. They are joined by UBS at $920,000 cash grid and $90,000 deferred compensation. This isn’t surprising, particularly in the case of Wells Fargo. Wells Fargo has seen the highest level of attrition in financial services history and a larger upfront paycheck with a higher percentage of deferred compensation clearly reflects their attempt to stop the bleeding in their leading advisor and team ranks.
On the flip side are the wirehouses choosing hefty deferred compensation as their strategy. The firms leading this charge are Merrill – Bank of America and Morgan Stanley. According to the SourceMedia study a $2 million producer at Merrill – Bank of America can expect to receive $855,000 in cash grid and $151,250 in deferred compensation. Similarly, a producer at the same level at Morgan Stanley can expect a cash grid of $867,300 and $112,700 in deferred compensation. The compensation at Merrill – Bank of America and Morgan Stanley are likewise, just as their Wells and UBS counterparts, unsurprising. Both Merrill – Bank of America and Morgan Stanley in recent months announced programs aimed at rolling high net worth advisory clients into specific banking products and tied the compensation of their advisors to assisting in that growth model. In other words, help us grow these banking programs and realize the financial benefit after achieving that goal.
What all of these wirehouse compensation strategies convey, regardless of firm, is the continued disconnect wirehouses are experiencing with their advisors – though this may not be readily apparent to the wirehouses themselves. After all, the wirehouse business model has thrived on dollar first thinking so it is only natural that they think this is the way to win the hearts and minds of their advisors. What they fail to recognize is that the reason advisors are leaving isn’t just money. Advisors choosing to leave wirehouses for regional and independent firms have other motivations that precede the all mighty dollar. These include a desire for a flexible corporate structure with an advisor-first mentality and substantial technological, marketing, and systemic support. And yes, this also includes the desire for a substantial pay day but one predicated on building a book of business that is sustainable, client focused, and limited only by the skill and dedication of the advisor themselves.
Also telling – and something which should be on the radar screens of every wirehouse out there – is that the compensation they are offering their advisors is ultimately not higher than their regional and national counterparts and; therefore, will not achieve the impact they are seemingly striving for. For instance, as outlined in the SourceMedia study, Raymond James offers their $2 million producer a $900,000 cash grid and a $185,000 deferred package and Janney offers the same producer a $920,000 cash grid and a $160,000 deferred compensation package. Total compensation at these firms is $1,085,000 at Raymond James and $1,080,000 at Janney – a compensation level that in the end proves higher than every wirehouse featured in the study. Both Raymond James and Janney compensation plans are reflective of the same forward-thinking strategy which is drawing new advisors and teams to their ranks every day – put cash and deferred compensation in alignment with a firm vision of corporate transparency and abundant advisor resources in order to foster growth financially for both the firm itself and its advisor.
Sadly, the wirehouse compensation programs, as outlined in the SourceMedia study, are more of the same wirehouse messaging just in a new package – tow the line in the way we want, in the system we have created, and get paid for it. As advisor attrition numbers show, this thinking is simply not reflective of financial services today. It is time for major shifts at wirehouses – particularly at the operational and managerial level – as the dated and tight-fisted money-first thinking the wirehouses are holding onto is certainly not winning the battle.