Wirehouse firms are scrambling for attrition solutions as more and more of their advisors show their discontent by heading for the door. Most recently, large firms have attempted to pacify their advisors in the form of early release of 2019 compensation plans. These compensation plans are being used as perceived enticements to advisors to not only stay on board, but to drive revenue to where the firm sees a need for growth. The most recent wirehouse to join the early release party is Morgan Stanley, which announced its advisor compensation plan for 2019 last week, well in advance of the traditional November release for the firm. The change to Morgan’s compensation plan will take effect in April 2019 and, while the core compensation plan will not change, new incentives have been added such as a 15 basis point bonus on the cash balance funds of clients that brokers drive into Morgan’s banking services and up to a 3 point bump for increased financial planning activities and NET acquired asset increases. Additionally, Morgan has boosted their lending growth award payout substantially, nearly doubling the amount seen in previous years. The Morgan plan is not the first of its kind as it follows very closely the one released several months ago by Merrill Lynch, which relies heavily on advisors driving new household growth income in order to achieve top level bonuses.
As ever, what the wirehouse firms fail to realize is that incremental strategies, such as early compensation plan announcements, when used to address advisor dissatisfaction merely put a band-aid on a gaping wound. Further many of the strategies are masks meant to hide the ultimate self-serving nature of the wirehouse protocols. Take for instant Morgan Stanley’s 15 basis point bonus. This bonus is structured in such a way that it will not move the needle for most of the firm’s advisors unless the advisor is managing a large pension fund. Further, Morgan Stanley has consistently gone with a market top narrative which allows the firm to make money on cash while simultaneously driving a wedge between the advisor and client. Regardless of the perceived bells and whistles of a new compensation plan, Morgan has once again hamstringed their advisors into a position where they will see decreasing personal financial benefit as their ability to service clients optimally continues to deteriorate.
The same sort of slight of hand holds true with the Merrill Lynch plan as well. Merrill has been floating numbers in the media that seem to show their revised compensation plan is working and resulting in financial growth. If losing $15BB year-to-date means your plan is working, then Merrill’s right on target. However, in the real world the $15BB Merrill has lost so far this year, second only to Wells Fargo’s $21BB, is a further indicator that both their advisors and their customers have not bought into the firm’s vision, policies, or results.
In order to remedy their monumental problems, the wirehouses must come to grips with the fact that both long-term vision and a true shift in the financial services paradigm needs to occur to achieve the desired result. It is important to understand that the wirehouse firms, each of which is owned by a bank, operate under dated logic. For instance, wirehouses will say that it makes sense for compensation and incentives to be tied to loans, cross selling, mortgages, or cash management as this achieves a holistic wealth management approach for both the advisor and the firm. While the wirehouses may believe this, many in the industry do not as seen in the ever-increasing numbers of advisors joining Hybrid, RIA, and Independent firms. Independent firms provide the best solution for both the client and the advisor through their innate structure that supports unconflicted, non-proprietary holistic solutions. Clients benefit by receiving more competitive pricing, not tied to the bank-owned wirehouse profit and loss statement. The advisors – and their paychecks – benefit through their ability to offer a flexible array of financial products such as lending services, outsourced high-touch fixed income, and traditional and alternative asset management options, among many others. And, ultimately, both the advisor and the client benefit through the solid and sustainable business relationship that is achieved.
The wirehouses may shout from their bullhorns that change is being made, that they hear their advisors and customers, and are making strides to solve their core systemic issues. It is become readily apparent; however, that for wirehouses the strategies they are willing to employ come from the same play book that has been used again and again, always with lackluster results. Perhaps, in the end, the wirehouses should take a look at their competition at the independent firms, realize that financial services is heading in a different direction, and decide whether they want to get back in the game by playing on the field that exists today.
