Despite competitors making sizable adjustments to their 2020 compensation plans, Wells Fargo has largely left its untouched — a welcome relief to most of its reps.
All the major wirehouses have either unveiled their 2020 compensation plans to advisors, or, in Merrill Lynch’s case, told them to expect no change. One conclusion now seems obvious: wirehouse FAs must lard their books of business with clients who have higher account balances on average, or otherwise expect their own take-home pay to dip.
Wells Fargo rolled out its plan this week to its 13,723 financial advisors. The company made no changes to levers or hurdles for the roughly 9,500 FAs in its Wells Fargo Advisor Led channel, formerly known as the Private Client Group, to achieve the same payouts as they did this year.
Wells Fargo also made no changes to the grid rates for the roughly 3,000 advisors in its Community Bank Advisor channel, formerly known as Wealth Brokerage Services.
But at the same time, Wells Fargo also reduced the payout rate to 20% for accounts with assets of $250,000 or less — a change that will likely hit FAs in the Community Bank channel the hardest.
Wells Fargo had previously imposed a 10% payout rate on all accounts under $100,000 and that was not changed. Wells Fargo management will adhere to that low payout rate for such accounts with smaller balances, regardless of other factors — such as the revenues generated by advisors or the growth in their assets under management.
With another change in the 2020 compensation plan, however, Wells Fargo has created a potentially lucrative path for those same FAs to get a 50% payout rate on new accounts that are “self-sourced” — accounts not referred to the rep by a community bank or a wealth management unit partner or through reassignment of departing FAs' books, according to two Wells Fargo executives who spoke to FA-IQ for this story.
“We’re trying to harmonize all new business” between the two channels, said Rich Getzoff, head of Advisor Led, who was joined by Warren Terry, managing director of business performance and due diligence, for a telephone interview.
Previously, Wells Fargo’s rivals Morgan Stanley and UBS announced that in 2020 they would raise thresholds required for FAs to receive the same payouts as they did this year, as FA-IQ previously reported.
Merrill Lynch’s managers said in July they had no plan to change the firm's compensation plan, and then reconfirmed in October.
A senior executive also specifically ruled out any increases in 2020 to the number of new client households, set at six in 2019, which FAs are required to add to their rosters each year to maximize their compensation.
But at Merrill Lynch, a bias is also built into compensation for FA who add clients with big balances to their rosters. Under the 2019 plan, FAs can add fewer if the households they do add are high net worth — more than $2.5 million in assets. Advisors who add one household client with $25 million or more in assets, for instance, would get credits towards their “growth grid” bonus as if they had added four household clients with $2.5 million or less in assets.
One recruiter viewed as predictable the wirehouses’ zeal for FAs to draw households with larger balances as clients, given the growth of alternative online and do-it-yourself wealth management products.
“Major wirehouses want their advisors to focus on $250k-plus households — so the new policy is not surprising,” says Mark Elzweig, a New York-based recruiter.
Wells Fargo’s Getzoff and Terry expect Community Bank FAs to welcome the new opportunity to have their compensation reach the same levels as those in the WFA-Advisor Led channel.
The two Wells Fargo executives view the change as a way of “harmonizing” the compensation of the two channels — FAs at the community banks and the company’s traditional brokerages.
Wells Fargo also has a third channel of independent FAs, known as FiNet, which has a roster of roughly 1,000. Last week, Wells Fargo announced it had simplified the compensation grid for that channel, basing an entire team’s compensation on its trailing 12 months of revenue. Individual advisors’ T-12 will no longer be a direct factor in the compensation grid.
About the new 20% payout rate for clients’ accounts with balances under $250,000, FAs have been moving in that direction anyway, the Wells Fargo executives insist.
“That process and journey has been happening in the course of the last five years. The journey continues,” says Getzoff. A vast majority of Wells Fargo financial advisors have over 50% of their roster comprised of clients with more than $250,000 in their accounts, he adds.