With fiduciary rule in place, two broker-dealers cut adviser compensation

LPL is eliminating some bonuses, while Raymond James is trimming compensation in its employee channel for those producing more than $300,000 in revenue

Jul 11, 2017 @ 2:57 pm

By Bruce Kelly

Two prominent broker-dealers are cutting bonuses and payouts to advisers, in some cases because of the Department of Labor's new fiduciary rule.

LPL Financial is eliminating a "general securities bonus" applicable to the volume of equities and fixed income securities traded by an adviser, according to two sources who asked not to be named. Meanwhile, Raymond James's employee broker-dealer unit told its 2,500 reps and advisers that many of them would get a 1% cut in pay.

This LPL bonus that is being eliminated went to a small number of veteran advisers who built portfolios through buying and selling individual securities, according to an LPL branch manager. The majority of contemporary advisers at LPL buy and sell packaged products like mutual funds or variable annuities for clients.

It was not clear the exact amount of such bonuses or the amount of trading that would qualify an adviser for such a bonus.

The DOL rule requires firms to address incentives that could cause advisers to act contrary to what would be in a client's best interest. The DOL is specifically concerned with conflicts of interest that are created by retroactive bonus structures, noted one source.

LPL has been viewing compensation to advisers in preparation for the DOL rule, noted company spokesman Jeff Mochal.

"We decided to eliminate a securities bonus arrangement that was retroactive," Mr. Mochal wrote in an email. "The standard production bonus arrangement, which is prospective, was not impacted."

Last month, LPL told advisers there would be level compensation on fixed annuities and unit investment trusts.

(More: How broker-dealers have changed compensation to prepare for the DOL fiduciary rule)

Raymond James advisers producing more than $300,000 in annual revenue would see a reduction in payout of "just 100 basis points," according to a memo sent Monday to advisers from Tash Elwyn, president, private client group, Raymond James & Associates.

That means that an adviser who generated that specific amount of revenue — $300,000 — would experience a $3,000 pay cut.

Mr. Elwyn did not directly point to the DOL's new fiduciary rule as the reason for the pay cut, but instead cited the tougher regulatory environment as one of the reasons for the change.

"The changes address three key factors: rising costs, especially related to maintaining service levels in light of the regulatory and legal environment; continued investment in technology and other resources to support advisers; and, overall higher average productivity of advisers and related higher compensation costs," Mr. Elwyn wrote. "Consistent with our culture, all changes were thoroughly researched, discussed — with input from representative adviser groups — and anticipated over the past 18 months."

The changes in compensation take hold at the end of September when Raymond James begins its next fiscal year. The adjustment is the first in nearly 20 years, the firm noted.

"This change marks the first time in almost two decades that the firm has adjusted how much it pays to advisers, over $300K in production," the memo stated.

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