In an effort to harmonize its legacy payroll systems, Wells Fargo Advisors LLC has created a standard withholding-tax rate of 25% across its network of 12,000 employee brokers.
The move took effect Jan. 1
The change significantly effects the take-home pay of the firm's registered representatives, because brokers who produce $1 million or more have less withheld from paychecks, creating a higher tax bill later. Conversely, smaller producers, those who generate $400,000 or less per year in fees and commissions, are seeing a whack to their monthly take-home pay.
Wells Fargo Advisors told brokers about the move last month, but many disregarded the information, sources said. “A lot of people didn't pay attention, but they'll pay attention when they get their first paycheck,” said one Wells Fargo rep, who asked not to be identified.
Reps estimated that some advisers could see their net pay shrink by as much as $1,000 a month.
The firm is integrating legacy payroll systems, including that of Wachovia Securities LLC, which it acquired in 2008.
A Wells Fargo spokeswoman, Teresa Dougherty, would neither confirm nor deny reports about the new flat rate for advisers. She said that the firm started telling advisers about its “payroll conversion” over the summer.
Ms. Dougherty stressed that “most of the compensation changes [such as an enhanced 401(k) match] are positive.”
Wells Fargo Advisors is taking precautions to soften the impact of the change, said one industry source with knowledge of the firm's plan, who also asked not to be identified. The flat withholding rate is supposed to last for just one year, and Wells Fargo Advisors will offer brokers with cash flow problems a one-year interest-free loan, the source said.
Starting in 2011, big producers will be given the option of withholding more income for taxes, the source said.
A disparity between in how Wells Fargo Advisors and Wachovia Securities paid brokers is at the heart of the change. Wells Fargo paid brokers twice a month, while Wachovia reps got one paycheck a month.
The new system is an interim measure to integrate the approaches.
E-mail Bruce Kelly at firstname.lastname@example.org.