A wirehouse that has lost more than 1,200 financial advisors from its headcount over the past 12 months is trying to help boost its retention by launching a simpler pay grid next year.
Wells Fargo Advisors’ 2022 advisor compensation plan will slash the three current hurdles determining the base payout rate based on monthly revenue to only one for the Private Client Group while dropping a penalty on certain referrals received by bank-based brokers and hiking up some possible deferred compensation incentives, the firm said Dec. 14. Wells Fargo unveiled its pay grid weeks after wirehouse rivals
While Wells Fargo’s plan resembles the streamlining and targeted pay increases of the other firms, it has seen more advisors leave the firm in recent years amid
“Advisors really despise complicated compensation plans,” Sarch said in an interview earlier this month. “When firms tweak them, it's just another example of complicated things that they have to learn.”
Starting in January, advisors in Wells Fargo’s Private Client Group will get 22% out of the first $13,500 they generate in monthly revenue, with a 50% rate on any other business. For enhanced compensation, advisors will qualify individually if they produce at least $2 million in trailing 12-month revenue and growth of $150,000 or more from the prior year. For teams, each advisor must have an average of $800,000 or more in annual revenue while having an agreement on file to share 75% or more of their combined revenues.
Brokers will find their new pay grids “easier to commit to memory” and an “outstanding opportunity that we have for advisors who are growing their business,” John Alexander, head of divisional network for Wells Fargo Wealth & Investment Management's Client Relationship Group, said in an interview.
“I’ve been here for 23 years and, at Wells Fargo, we've never had a better pay plan in my career. I’m certain of that,” Alexander said, citing feedback from the company’s advisors about the various compensation structures. “They wanted them to be simpler. They had really just gotten too complex over the last several years. We listened to the feedback.”
For bank-based advisors, the firm is eliminating one area of complexity by getting rid of a current reduction from their payout on business referred by Wells Fargo’s consumer bank. Wells Fargo is keeping the existing standard grid rates the same while using the same criteria for enhanced pay, although teams only need to have averages of at least $500,000 per advisor. Bank-based teams qualifying for the enhanced compensation will receive the grid rate of the highest producer, while Private Client Group advisors get 50% payouts. Teams in either channel that meet the criteria will also receive $5,000 per advisor in deferred compensation.
In addition, the firm altered the deferred compensation incentives in both channels to give certain advisors a higher amount based on four factors: revenue, company tenure, net asset flows and their full balance sheet. Advisors must generate at least $400,000 in trailing 12-month revenue to get the components of the incentive relating to net asset flows and the balance sheet. Provided that they produce higher revenue in 2022 from loans than a year earlier, they’ll get 150% of the difference in securities-backed lending and 50% on their one-time mortgage business from next year. The rate for mortgages is currently 25%. In net flows, the company will add a third tier to the rates and do away with a limit on the incentive for that category.
“Every year we have financial advisors who bump up against that cap and wish it wasn't there,” Wes Egan, head of partnerships, teams and succession planning for Wells Fargo Wealth & Investment Management, said in an interview. “We want to be the firm of choice for financial advisors who are looking to grow their business.”
Asked about the recruiting challenges facing the company, the two Wells Fargo executives pointed out that the company also operates an independent brokerage through Wells Fargo Advisors Financial Network and an RIA custodian with Wells Fargo First Clearing. After its
Wirehouses are increasingly trying to stem the tide toward independence with rising levels of deferred compensation, according to Sarch, who compares the practice to sales of Starbucks gift cards that may not be fully used by those receiving them. The company can pocket the leftover money from producers who exit before they can cash those checks, he said.
“Deferred compensation is another way of saying you're holding what I earned,” Sarch said. “It's designed to only be kept if you stay.”
