In 2014, carrot and stick for advisers at Wells Fargo

Wirehouse will require more revenue, set new targets but give advisers more ways to top the hurdle

Dec 19, 2013 @ 5:03 pm

By Trevor Hunnicutt

wells fargo, financial advisers, wirehouse, targets, revenue
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(Bloomberg News)

Wells Fargo & Co.’s largest group of financial advisers will have to generate more revenue or meet new performance targets in 2014 in order to pocket the same cut of revenue they earned this year. But the third-largest brokerage will also give its advisers more ways to overcome or lower that monthly hurdle, Wells Fargo officials said Thursday.

Advisers with the Wells Fargo Advisors Private Client Group will be able to able to earn 50% of their revenue after earning $13,250 in fees and commissions each month, higher than the $12,000 that was required last year. Otherwise they will make just 22% of what they bring in, according to an outline of the plan shared with InvestmentNews after it was announced internally.

But advisers will be allowed to lower that hurdle to as little as $11,500 if they meet performance goals — from winning $5 million in new assets from clients to implementing of the company’s best practices on goals-based financial planning, moving client assets to the firm’s advisory platform and growing the brokerage’s lending to clients. Advisers can also receive retroactive pay by meeting performance targets in 2014.

Wells Fargo & Co. joins two of its competitors, Morgan Stanley Wealth Management and UBS Wealth Management Americas, which two weeks ago also raised the bar for advisers to earn the same share of revenue. Merrill Lynch Wealth Management, which also announced its 2014 pay plans, said it would not adjust its payout model or grid.

Switching away from a one-size-fits-all compensation model has been a priority for David Kowach, who took over the Private Client Group in 2012.

Wells Fargo is enhancing its support for advisers’ developing formal financial plans through its Envision program. Those plans are seen by industry executives as improving relationships with clients and increasing the amount of money that clients keep at the firm. UBS also recently increased the extra money added to advisers’ expense accounts for drawing up financial plans for customers by 10 percentage points.

Wells Fargo said it is also adding funds to its high-performing advisers’ expense accounts. The base rate for those accounts will be $500, but advisers who meet performance goals or earn higher revenue can receive more. For instance, an adviser who earns $500,000 but meets one of six performance goals will receive $1,500. Any adviser who earns $850,000 in fees and commissions will receive $10,000, and advisers who produce $1.5 million or more will receive $15,000.

Wells Fargo also increased the caps on deferred compensation, from 2% last year to 8.25% for advisers who produce $300,000 in 2014. The cap is higher for advisers who produce more.

The tweaked compensation program also includes a redesigned retirement component that will increase the maximum possible valuation of an outgoing adviser’s client list from 100% to 160%.

Wells Fargo will also allow advisers to transition to retirement over a total of five years, up from three, which company officials said is the longest in the wealth management industry. Merrill Lynch’s new plan for 2014 will allow advisers 55 and over to retain an up-to-four-year consultant's role on their team after they retire. The brokerage industry has been searching for novel ways to plan exits for its graying advisers.

Advisers who receive the retiring advisers’ book of business will be allowed to earn a three-year growth award for growing revenues by 10% annually. The award is an extra 10% payout for the incremental growth.

Next year marks a changing of the guard for Wells Fargo Advisors as its long-time chief, Danny Ludeman, plans to retire on Jan. 1. Mr. Ludeman is being replaced by Mary Mack, the first woman to lead a brokerage since Sallie L. Krawcheck was dismissed from Merrill Lynch in 2011, and advisers are closely watching whether Ms. Mack will steer the brokerage in a new direction, recruiters said.

“Everybody’s going to be watching Mary Mack at Wells to see how she does,” said recruiter Rick Peterson. “She’s going to be under the gun to not do anything radical.”

Wells Fargo Advisors, which is owned by a bank that is the country’s largest mortgage lender, is placing an increasing premium on cross sales of nontraditional products, such as loans. And Ms. Mack has indicated in interviews since her appointment that she is willing to shift more clients away from stock-picking to the firm’s managed-account platform.

Wells Fargo employed 15,285 financial advisers at the end of its fourth quarter Sept. 30, according to their earnings report. Most of those advisers work in the Private Client Group, a network of brokerage branches around the country.

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