Every year, advisors anticipate changes to the compensation grids that determine how much they'll be paid for their production. A
More than 3 in 5, or 62%, of wirehouse financial advisors think their compensation plans are too complex. Only 38% of advisors in broker-dealers at large feel this way, according to Cerulli Associates research released March 9 in the new "The Cerulli Report — U.S. Advisor Metrics 2022: Trends in Advisor Compensation."
Nearly half of wirehouse advisors, 47%, said their firm changes compensation structures too often. In addition, half of them felt the plans are based on criteria they could not control, such as years worked at the firm — compared to only 22% across all broker-dealers who felt this way.
"30% of Millennial B/D advisors between ages 26 and 41 feel that account size minimums have limited their business development opportunities," the report said, suggesting that certain wirehouse compensation hurdles or requirements are particularly irksome to younger talent who have a harder time building up their books to begin with.
"While it is less favorable among B/Ds today, a salary-plus-bonus option may help attract and retain new advisors," the report said.
Other comp features unpopular among all broker-dealer advisors included cross-selling, which 11% said figured too prominently in their compensation, and tweaks, with 15% saying their firm made changes too often.
The data was based on responses from 1,500 financial advisors, who were all licensed brokers, to surveys throughout 2022. Several questions were new to the surveys this time as part of a greater focus on compensation,
Constant adjustments to compensation structures have a number of significant downsides, according to Mark Elzweig, an industry consultant and recruiter.
"The simpler an advisor compensation plan is and the less that the firm monkeys with it, the better," Elzweig said in an email. "Yearly tweaks give many wirehouse advisors a feeling of lack of control over their businesses. They are morale killers."
Although the majority of advisors surveyed in the report said they were satisfied with their current compensation structures, around 3 in 10 advisors were either neutral or dissatisfied. The unhappy were disproportionately found among wirehouses, where 24% said they were displeased with the compensation plans.
That's over three times as many unhappy advisors as those at independent broker-dealers, where only 7% weren't satisfied, and almost five times the reported rates of unhappiness at national or regional firms, where only 5% of advisors were unhappy with their pay structures.
"Too many payout changes at a firm will push many of their advisors to go independent or join regionals," Elzweig said, referring to the wirehouses. "Regional firm payouts are typically models of simplicity, and they don't change very often."
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"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."
Wirehouses seem to be aware of these concerns and attempting to address them. UBS, Wells Fargo and Morgan Stanley
"Merrill did make a larger adjustment," Andy Tasnady, a compensation consultant and the managing partner of Tasnady Associates, said in a phone interview about the compensation grid changes for 2023.
"They got rid of an unpopular policy that Merrill Lynch advisors were complaining about and replaced it with two other policies to balance it out," he said — reflecting that Merrill's effort also represents a similar attempt to avoid ruffling feathers too much among brokers.
Shtyrkov acknowledged that the wirehouses are trying to address this pain point by reducing how often they change grids. But she said they could likely do more to improve the reception from their advisors.
"I'd also recommend that wirehouses streamline the various components of compensation — production thresholds, bonus opportunities, growth requirements, product-specific payouts, etc. — to just the most crucial pieces that advisors have control over," she said.
"It's become very difficult for B/D advisors, particularly at the wirehouses, to understand how they're getting paid… compensation can be a very powerful behavior modification tool. With such large advisor forces, it's difficult to get everyone moving in the same direction unless you provide a compelling reason."
Although the report was largely based on advisors' responses prior to the new comp grid announcements, Shtyrkov said she didn't think those more recent decisions to minimize tweaking would have a "major" impact on advisors' perceptions of wirehouse compensation, which likely remain "skeptical."
"It's difficult to say how much of an impact the announcements would've made on the data," she said.
The jury is out on whether wirehouses can hold out in the long term from more tweaking, she said, "given how major of a role this strategy has played over the years."
