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At wirehouses, complex compensation plans, talent retention and lawsuits are creating challenges, all at a time when many financial advisors are increasingly attracted to independent opportunities.
A majority of wirehouse financial advisors feel that their compensation plans are too complex according to "The Cerulli Report — U.S. Advisor Metrics 2022: Trends in Advisor Compensation." Additionally, 47% of wirehouse advisors said their firm changes compensation structures too often.
"Too many payout changes at a firm will push many of their advisors to go independent or join regionals," said Mark Elzweig, an industry consultant and recruiter, referring to the wirehouses. "Regional firm payouts are typically models of simplicity, and they don't change very often." This is evident as there were a reportedly record-high number of experienced advisor movements industry-wide last year. Morgan Stanley is the only wirehouse to add to its net advisor headcount year over year, usually by poaching from other wirehouses.
"Targeted compensation strategies can enhance advisor retention and productivity if practices are motivated to achieve the highest payouts," the Cerulli report said. "However, this approach can also backfire if advisors view the thresholds as unrealistic or unattainable."
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Retention issues are also impacting Merrill, as two recent major staff poachings from UBS further highlight the issue. Many of the teams leaving Merrill are those with the most experience and the strongest client relationships.
Jason Diamond, an executive vice president at the recruiting firm Diamond Consultants, finds it unsurprising that advisory groups with the most years of industry experience are also those most likely to leave."They are the ones who notice the most how much the firm has changed," said Diamond, who did not work on either of the UBS deals.
After an acquisition by Bank of America in 2008, Merrill has steadily undergone a process of what Diamond deemed "bankification." Many decades-long employees, he said, can today scarcely recognize the firm they started working for.
"It really should always be called Bank of America Merrill Lynch," Diamond told Financial Planning. "For lifers who lived through the glory days, it's very clear now that it's Bank of America calling the shots and not Merrill."
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Wall Street is still facing behavioral and discriminatory problems according to allegations in a lawsuit filed by a former Morgan Stanley employee, Tara E. Stewart. Stewart alleges that her former colleague, Evan Silverman, suggested within the first three months of working with her that she run an "operation honeypot" and use her good looks to "woo" affluent clients. She faced retaliation after reporting his behavior to a supervisor.
Lou Straney, a regulatory expert at Arbitration Insight, said the allegations are reminiscent of the sorts of behavior Wall Street has been trying to rid itself of since the "Boom Boom Room" scandal of the 1980s. Straney said Wall Street ever since has "been well aware that all employees are entitled to a safe and professional work environment. This is required, not a suggestion."
How are firms responding to these challenges and roadblocks? Read more below on these and other issues major wirehouses are navigating.
