Call it the anti-wirehouse compensation grid.
Raymond James & Associates Inc. has distributed a new one-page formula for payouts to its employee financial advisers that contrasts sharply with the complicated grids of large Wall Street competitors.
The compensation formulas for advisers at the wirehouses have become increasingly intricate as their companies try to steer advisers toward wealthier clients, more profitable products and increased growth in assets.
Raymond James has taken the opposite approach.
“We took an already simple grid and made it simpler, more transparent and completely product-neutral,” said Tash Elwyn, president of the private-client group at Raymond James & Associates. “We've been working on this for five years, and it was done with tremendous input from our advisers.”
While the wirehouses have drafted complicated bonus formulas to reward asset gathering and production growth, Raymond James has kept it simple. To encourage growth, it increased the number of production levels on its payout scale to 15, from five.
For example, an adviser generating $500,000 in fees and commissions previously had to bump his or her production up to $750,000 before his or her payout percentage would increase. Now the payouts increase at $600,000 — and more frequently across the entire pay scale.
“This gives advisers more incentive to grow and move up the grid,” Mr. Elwyn said.
The payout ratios range from 20% for advisers with less than $200,000 in production, up to 50% for those with more than $5 million.
The company also eliminated the five different payout levels for different investment products. While advisers currently earn less on an equity transaction than a mutual fund or annuity sale, all transactions, regardless of product type, now will have the same payout.
Penalties for discounting commission rates to clients also were scrapped. Raymond James has no minimum-investment limit for clients.
“The adviser is a professional and it's up to them what type and size of client they want to work with,” Mr. Elwyn said. “We also want to let them determine how to price their services to clients.”
The company gives full payout on trades with a commission over $100. It will continue to pay only 25% for commissions between the client minimum and $100. There is no payout on equity and fixed-income product trades generating commissions below $75, nor on option trades generating less than $60 in commissions.
Mr. Elwyn characterized the changes as cost-neutral to Raymond James and said the new grid would help the company recruit new advisers and, more importantly, retain existing ones.
“You would be hard-pressed to find a compensation grid change in which financial advisers are kept at the same level of compensation,” he said.
The payout schedule, which applies to advisers with at least seven years of industry experience, takes effect Sept. 30 for advisers already at the firm and immediately for advisers joining Raymond James.