UBS, Merrill increase bonuses for new assets and banking referrals

2015 compensation plans push advisers to build their AUM and refer clients to the bank

Dec 12, 2014 @ 1:05 pm

By Mason Braswell

If you want to know where the largest brokerages see the business going, look no further than their brokers' compensation plans.

Both UBS Wealth Management Americas and Bank of America Merrill Lynch are tweaking their advisers' pay plan next year to sweeten bonuses for advisers who bring in new assets and refer clients for banking products.

“We've made changes to our compensation plan annually for the last five years, to really support our strategy,” said Jason Chandler, the head of UBS Wealth Management Americas' Advisor Group with a focus on the Eastern U.S. “It's a great time to be in the advice business, and a [focus] of the business philosophy and compensation plan is to provide clients with advice beyond investing.”

UBS Wealth Management Americas, which has about 7,100 advisers managing $1.07 trillion in assets, is lowering the threshold for advisers to qualify for its “net new asset award” to a $1 million household from $5 million in 2014.

The goal was to make growth seem more attainable, Mr. Chandler said. The first $1 million to $3 million in assets from a new client wins advisers 0.50%, and the award tops out at 3% for those who bring in $20 million or more.

UBS is also expanding its wealth management award to include advisory, insurance, lending and planning fees. Advisers for whom the wealth management business is 50% of their revenue can earn an additional 4% of their annual production yearly, for example.

Both awards are paid as deferred compensation with 70% as cash and 30% restricted equity.

Merrill Lynch's compensation changes for its roughly 14,000 brokers follow a similar pattern. The firm is doubling its Strategic Growth Award, which is paid half deferred and half as up-front cash. Next year, the award will provide 10 to 20 basis points for new fee-based assets, banking, lending and trust business, up from five to 10 last year. Advisers can earn five to 10 basis points on top of that for bringing in two or more new households.

In addition, Merrill Lynch said it would penalize advisers or teams not sending at least one client to Bank of America for its business, commercial or investment bank.

The connection does not have to result in a product's being sold, but those who don't make a referral will have their deferred compensation docked by one percentage point in 2016.

Most advisers are already making at least one referral a year, according to Merrill Lynch spokeswoman Susan McCabe.

Referrals are still a point of contention for some advisers, who are not always eager to share clients.

“That's always an area of focus and contention — how fast and how far to promote the lending aspect of the bank,” said compensation consultant Andy Tasnady of Tasnady Associates. “It's a careful calibration for encouraging it without pushing it too far.”

Keeping clients in cash or money funds also will be less profitable as the firm reduces cash payouts to four basis points from eight in 2014.

SMALL HOUSEHOLDS

At the same time, Bank of America Merrill Lynch is making it less profitable for its roughly 14,000 brokers and advisers to serve affluent households of $250,000 or less.

Those who have more than 20% of their business below $250,000 will no longer be paid on those accounts. The firm has been moving away from that size of client in recent years as it pushes advisers to send them to Bank of America's Merrill Edge program.

The firm is the “leader in encouraging small household penalties,” Mr. Tasnady said. UBS Wealth Management Americas and Morgan Stanley Wealth Management pay on clients above $100,000; Wells Fargo Advisors does not have a penalty.

Only 3% of Merrill Lynch advisers would be affected be the change in small household policy, according to a source at the firm. But the effect could be dramatic for the small portion who have a lot of clients in the $250,000 range, Mr. Tasnady said.

“If you're a $500,000 producer and that was 20% of your revenue, now you're going to be a $400,000 producer,” he said.

The core compensation grid, which provides a general estimate of how much advisers will bring in based on the annual revenue they produce, will remain unchanged at both firms.

Morgan Stanley, which announced its compensation changes officially earlier this month, also left its grid unchanged but is deferring more of its brokers' pay.

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