Raymond James Financial Inc said Thursday it has overhauled its pay plan for financial advisers, eliminating incentives for selling certain types of financial products.
The simplified plan, which takes full effect in October and applies to the 2,200 advisers who work for the Raymond James & Associates division, is more in line with the compensation models of the nation's other large brokerage firms.
But unlike its competitors, St. Petersburg, Florida-based Raymond James has not modified its pay plan, known in industry parlance as the payout grid, as a way of "extracting profitability at the expense of advisers," said Tash Elwyn, president of Raymond James & Associates, the traditional employee broker-dealer division of the company.
He said the plan is cost neutral to the company and wasn't created with the intent of reducing adviser compensation.
The new plan doesn't apply to the over 3,200 advisers in Raymond James' so-called independent channel, Raymond James Financial Services. Those advisers receive higher payouts than the employee-model advisers because they are contractors who run their own businesses.
Raymond James & Associate's current pay plan is driven by the amount of revenue advisers bring in and the types of products they sell.
For instance, a top-revenue producing adviser at the firm - someone who brings in $1 million or more in a year - currently takes home half of the commission tied to mutual funds they sell and 45 percent of the commission tied to stock trades.
And a lower-revenue producing adviser - someone who brings in between $250,000 to $300,000 in annual commissions - currently takes home 42 percent of the commission tied to mutual fund sales and 39 percent of the commission tied to stock trades.
Under the new plan, the type of product sold will no longer be a factor. Instead, the payout percentage will be determined solely by the amount of overall commissions the advisers earned for the company in the previous year. The more fees they produce, the higher the percentage of that money they get to take home.
For instance, an adviser who brings in $1 million in annual commissions will take home half that money, while someone who brings in between $250,000 to $300,000 will take home 32 percent, based on the payout grid.
Advisers can get additional pay through the deferred compensation plan, which hasn't been changed.
A decade or two ago, many firms were using the product-based model about to be retired by Raymond James, but have since moved toward the commission-based compensation grid, said Andy Tasnady, founder the Port Washington, New York consulting firm Tasnady & Associates LLC.
Raymond James has been a bit behind the times, perhaps because it feared upsetting its advisers, Tasnady said, noting that advisers often assume that a change in their pay model will result in a pay cut.
But Tasnady, who advises brokerage firms on business and sales strategies, said he thinks Raymond James' new plan is a good blend of what the prior payout levels were.
A few other highlights in the new plan:
-The company left unchanged its no-account minimum policy, a contrast to many of its competitors, which require advisers to bring in a certain account size in order to earn a fee on it.
-Raymond James tripled the number of tiers in its grid, making it easier for advisers who increase the amount of commissions they bring in to edge up to higher payout percentage.
-Advisers will no longer get a pay reduction when they give their clients a discount on asset management services and equity and options commissions. Advisers often cut deals with clients as a relationship-building tool.
When asked if it this new policy could lead discounting to get out of control, Raymond James' Elwyn said the company trusts its "advisers to price themselves competitively."
(Reporting By Jennifer Hoyt Cummings. Editing by Lauren Young, Bernard Orr)