NEW YORK Wells Fargo Advisors outlined its 2014 compensation plan for retail brokers on Thursday, dramatically increasing the deferred compensation brokers can receive for meeting revenue goals, making more brokers eligible for expense accounts and tinkering with their monthly revenue targets.
Wells, the third largest U.S. brokerage firm with about 11,000 branch-based advisers, is the last of the big U.S. firms to spell out pay plans that influence how their brokers conduct sales and money-gathering efforts in the coming year.
Morgan Stanley (MS.N), Bank of America Corp's (BAC.N) Merrill Lynch and UBS AG's UBSN.VX U.S. brokerage unit unveiled plans two weeks ago that reward asset gathering, encourage brokers to work in teams and toughened revenue targets for lower-tier advisers.
Wells has picked up on those trends, with twists.
Several brokers said the deferred bonus targets are considerably higher than expected.
Brokers with annual revenue of $300,000 to $500,000 can earn deferred cash of as much as 8.25 percent of that total, up from 2 percent, if they meet one of four targets tied to metrics such as new client assets, loans and writing financial plans this year. Brokers who bring in $2.1 million or more can get 11 percent of the total, up from 8.5 percent.
The bonus potential, and Wells' decision to remove caps on the amount, puts the deferred bonus awards "into orbit," said one adviser.
"I listened to where the pain points were," David Kowach, president of Well's branch-based private client group said in explaining how the changes can help both top and lower-tier advisers. The deferred compensation presents the "biggest opportunity" for brokers and their managers, he added.
Wall Street has been steadily raising deferred compensation, seeing it as a way to delay immediate cash payouts and to lock in employees who might be tempted to jump to rival firms. Wells requires brokers to remain at least five years to collect their deferred cash.
However, Danny Sarch, a headhunter for brokers, said firms are getting more generous with the potential awards because many brokers do not stick around for the delayed payout.
Wells Fargo Advisors also adjusted its core payment plan. Unlike rivals that pay brokers a flat percentage of the fees and commissions they produce, the Wells Fargo & Co (WFC.N) subsidiary has a two-tier system that currently pays all brokers 22 percent of the first $12,000 they bring in every month and 50 percent on anything earned above that.
In past years, Wells has raised the hurdle for the higher payout by $1,000 with each new pay plan. That "tax" is no longer in effect, Kowach said.
In 2014, there will be three hurdles to the higher payout. Low-producing brokers will have to breach $13,250 each month before they graduate to a 50 percent payout. Mid-level ones must wait until they hit $12,500. Top-producing brokers, however, hit the 50 percent hurdle at $11,500, down from $12,000 this year.
Most of Wells' cash incentives-immediate and deferred-are tied to hitting targets related to improved revenue, creation of financial plans for clients and growth of wealthy households.
Kowach said that, unlike most of Wells' rivals, the firm this year is not gearing its bonuses to fee-based, rather than commission-based, accounts.
"Transactional business is half of our revenue and represents most of our client assets," Kowach said. "I want our people to do great business and help clients win regardless of the compensation model."
Most brokerage firms have skewed bonuses in recent years to fee-based accounts that generate revenue year-to-year, regardless of how often clients trade. Commission accounts tend to veer wildly as clients make trades in rising markets and withhold transactions when markets fall.
In other enhancements, Wells is giving more brokers expense accounts to entertain clients and prospects in 2014, including a token $500 amount to those who produce $300,000 to $500,000 and did not previously qualify. Top-tier brokers can get $15,000 entertainment accounts.
Like its rivals, Wells also has added incentives for advisers who work on teams, and has simplified penalties for brokers who discount commissions from its published price.
Wells also addressed its "aging broker" issue with an enhanced road-to-retirement program. The average age of a Wells broker is 56, and many are having a hard time finding younger brokers in their branches that they trust to take over their "books." In 2014, Wells will let them search wider for a successor within their geographic regions. It also has developed a valuation analysis that lets retirees sell their practice for as much as 1.6 times the revenue they produced in the previous 12 months. Older brokers also can remain at the firm for five years, up from three, after announcing their retirement plans as the firm looks for way to help them pass clients to younger brokers.
(Reporting By Jed Horowitz. Editing by Andre Grenon)
(This story was corrected to add dropped word "not" in paragraph 15)