3 wirehouses raise stakes to court rich

Adviser pay packages tweaked at Morgan Stanley, UBS and Merrill Lynch

Dec 8, 2013 @ 12:01 am

By Trevor Hunnicutt

Three top brokerages have raised the stakes for managing the finances of the wealthiest clients, tweaking pay packages for advisers to spur them to lock their sights on the most prestigious accounts.

In compensation plans announced internally last week, Morgan Stanley Wealth Management, Merrill Lynch Wealth Management and UBS Wealth Management Americas took a variety of steps to encourage their 40,000 advisers to emulate the industry's top revenue producers, who cultivate a select set of wealthy clients.

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Wells Fargo & Co., owner of the country's third-largest brokerage, has not yet announced its compensation plans for next year.

The changes reflect an industry segment that will employ only the very top tier of advisers, according to Alois Pirker, research director at financial services research firm Aite Group.

“If you're not in that bracket, you're not going to be at a wirehouse,” he said.

Morgan Stanley, the brokerage with the largest network of advisers, next year will require brokers who generate less than $2.5 million in commissions and fees to increase their revenue by 10% to get the same payout.

As it stands, the firm's brokers earn between 28% and 47%, de-pending on their total annual revenue. Advisers in the top bracket produce $5 million or more. Advisers with nine or more years of experience who produce less than $300,000 get just 20%.

But the firm will allow brokers to be paid for smaller accounts for up to two years, “allowing advisers time to bring additional assets to the firm and gain better visibility to clients' investments,” according to language from the plan.

The firm will also introduce a fee of 0.05% for adviser-managed accounts. The fee, which applies only to new accounts and will be capped at $15,000 per year, is part of the firm's effort to funnel clients into standard nondiscretionary portfolios.

Dive deeper:The 2013 InvestmentNews/Moss Adams Adviser Compensation & Staffing Study


Morgan Stanley will also expand an award of between $20,000 and $300,000 for asset and lending growth. The award will now be available to all brokers with total growth of $300,000 or more; it was formerly just for the top 40% of brokers by annual revenue. The firm's revenue growth award will also be more widely available and can total up to 5% of total revenue.

Morgan Stanley's plan also includes a provision that will increase by nearly 60% the top rate that advisers can earn for increasing loans such as mortgages and security-backed lines of credit. In 2014, advisers will be able to earn $202,500 for increasing that lending.

Merrill Lynch, the largest brokerage by client assets, last Tuesday introduced an award for teams who double their revenue in the five years after 2013. Those teams will share a payout equal to 10% of the team's incremental revenue growth.

More than half of Merrill advisers operate in teams today, according to spokeswoman Susan A. McCabe.

The Bank of America Corp.-owned brokerage's compensation scheme also includes a new way for advisers 55 and over to retain a two- to four-year consultant's role on their team after they retire. Advisers will also now see a doubled credit for positive flows on trust fees.

UBS, the fourth-largest wirehouse, will lift bonuses for large accounts and high amounts of new client assets while reining in the amount the company spends on lower-producing advisers.

For instance, advisers who earn more than $550,000 in commissions and fees annually will see increased expense accounts — from $500 to $10,000, based on their productivity, according to Jason Chandler, head of the Wealth Management Advisor Group at UBS.

In a similar move to Morgan Stanley's, UBS will cut payouts for some advisers who generate between $300,000 and $600,000. And the company will not pay advisers for working with households with less than $100,000, up from $75,000.

Advisers with eight or more years of experience will have to produce at least $350,000 in 2014 to earn the minimum 28% payout from the firm in 2015. That is up from $325,000 this year. Top rates still stand at a possible 48% for revenue of $3 million or more.

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UBS is focused on clients with more than $1 million to invest, and so far, that focus is paying off, according to Mr. Chandler. Revenue from households with between $1 million and $10 million invested with the firm has grown 52% in the past three years, Mr. Chandler said, and revenue has grown 80% on accounts over $10 million, which the firm calls ultrahigh-net-worth clients.

“If they're growing their business and focusing on wealthier clients, they're going to make more money,” Mr. Chandler said.

The firm's new compensation plan also enhances incentives for advisers to develop formal financial plans with their clients. Mr. Chandler said the plan also increases by 10 percentage points the kickback to advisers' expense accounts for drawing up financial plans for customers.

Andrew Tasnady, managing partner of consultant Tasnady & Associates, said UBS joins its competitor Wells Fargo in emphasizing these plans. “When done and done well, it definitely pays,” he said.


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