Displaying items by tag: compensation
A new study from Cerulli Associates has found that wirehouses are performing very well in one regard—advisor productivity. The average wirehouse advisor has $175m in AUM, almost double the industry average of $77.9m. Even more amazingly, wirehouse productivity has risen from an average of $148m at the end of 2018 (to $175m at the end of 2019). However, wirehouses are still shedding many advisors to RIAs and IBDs. Cerulli identified two key reasons why. The first is as old as the industry itself—compensation. According to Cerulli, wirehouse advisors are growing increasingly tired of “complicated and sporadically changing compensation grids”. Additionally, support staff is an area where advisors are frustrated, reporting a lack of support staff as an issue at a far higher rates than at other BDs and RIAs.
FINSUM: Wirehouse advisors currently enjoy two advantages—brand strength and scalable firm-wide technologies. Neither is enough to stem the current outflows of advisors, and the technology aspect is quickly being eroded by improving tech stacks for independent advisors.
Morgan Stanley was due to make some big pay changes for advisors starting April 1st. The changes would mean a reduction in compensation for similar production levels. However, in light of the Coronavirus outbreak, the firm has said it is pushing the implementation date for the changes back to October 1st. Directly addressing the firms 15,000+ advisors, the head of field management said “We know that you are facing enormous challenges personally and professionally while at the same time taking great care of your clients in a very difficult environment”.
FINSUM: These changes are tough to begin with, and doing them right now would have been downright draconian (and might have caused some extra departures).
Earlier this year (before the Schwab deal), TD Ameritrade put out an interesting report about breaking away. The report was centered on advisors’ motivations for breaking away as well as their likelihood of doing so. One of the most interesting findings is that as of July, 46% of advisors who were thinking of breaking away said that they had increased urgency since the start of the year. 44% said they would move within the next year. The main reasons were freedom, compensation, and client service, all of which they felt were better at an independent. Another key finding is that only about 36% of advisors wanted to breakaway on their own; most wanted to merge with another partner or join an established firm.
FINSUM: The breakaway movement is only gaining momentum. Wirehouses are shedding advisors and RIAs and IBDs are picking them up left and right.
One of the most contested parts of the 2010 Dodd-Frank legislation was the legal mandate the act gave to regulators to create pay caps for Wall Street. The industry has fought tooth and nail to block their imposition, successfully curbing any changes for nine years. The last major push to cap pay was in 2016, but nothing has happened since then. Now a consortium of regulators, including the Fed, FDIC, and the Office of the Comptroller of the Currency and Federal Reserve are coming together to create new rules. The most likely target are high ranking executives, but talks in the past have extended to rank and file employees.
FINSUM: Caps for top executives will be anathema to some, but restrictions for regular employees are a whole other issue that will cause a major uproar.
Merrill Lynch’s new compensation plan is not being received well by brokers. Many are angry about certain aspects of the plan and are pushing back. In particular, brokers don’t like that the plan incentivizes them to tell clients to take on more debt during a period when interest rates are rising. Around 15,000 advisors have complained to Merrill Lynch management. Management responded by saying it was a good incentive and was designed so that it didn’t heighten conflicts of interest.
FINSUM: This seems like it will just create misaligned incentives, especially given that it is being put in place when it is very unfavorable to be adding debt.