NEW YORK — In an effort to charge up its top registered representatives and financial advisers,
Raymond James Financial Services Inc. is giving bonuses to its biggest-producing brokers.
In the style of a 401(k) plan, the new deferred-compensation program this year gives a bonus of 1% to affiliated reps who produce $450,000 in fees and commissions, a 2% bonus for $750,000 producers, and 3% for reps and advisers who produce $1 million.
After that, the bonus, which will affect about 500 of the firm’s 3,600 reps, increases 1 percentage point for every additional $500,000 in production, topping out at 10% for reps who produce $3.5 million in fees and commissions.
That pushes those elite reps’ payout to 100% — or even more — of their production, according to the company.
And the bonus program, which in part replaces and augments the firm’s stock options program, makes the firm more competitive in terms of recruiting and retaining top advisers, observers said.
Last summer, the industry’s biggest firm,
LPL Financial Services of Boston and San Diego, made a somewhat comparable move, giving its bigger producers a higher payout. That topped out at 98% of a rep’s fees and commissions.
The move by St. Petersburg, Fla.-based
Raymond James Financial Services is “a creative way” for the firm to compete with LPL and its high payout, said Jodie Papike, vice president of Cross-Search, a Jamul, Calif., recruiting firm for independent reps and executives.
Growth at
Raymond James Financial Services has suffered lately, compared with that of its competitors. The company recently cut ties with lower producers and alienated some reps last year by cutting and capping payouts on variable annuities, because the firm thought some of the products were too expensive.
With $890 million in gross revenue in fiscal 2006,
Raymond James Financial Services grew at a pace of 7.4%, compared with the level of the prior fiscal year.
Meanwhile, LPL recorded $1.7 billion in gross revenue last year, for a growth rate of 24.5%. And the top 25 independent-contractor broker-dealers, which include the leading insurer-owned networks, had a growth rate of 16.6% last year.
Like
Raymond James Financial Services’ stock options program, the new bonus program isn’t transferable to another broker-dealer. That makes it a form of “golden handcuffs,” Ms. Papike said.
“If someone plans [on] staying there for the rest of their career, it’s a fabulous deal; it’s top-notch,” she said. “The only drawback is, you can’t take it with you if you leave.”
In a highly competitive business environment, some independent-contractor broker-dealers continue to expand their pay packages and offer deferred compensation (see related story, Page 24).
Others have goosed the payout. For example, Investors Capital Corp. of Lynnfield, Mass., this month is increasing its payout on fee-based business to 100% from 90% for reps with $100 million in fee-based assets under management.
One of the top producers at
Raymond James Financial Services cheered the new bonus program.
“Someone who’s producing $3 million to $5 million in revenue should be seen differently than someone who’s producing $500,000 or less,” said Malcolm A. Makin, president of Professional Planning Group of Westerly, R.I., whose firm has about $650 million in assets under management, nearly 85% of which is fee-based.
The new bonus program signals a shift by the company, he said.
“A strength is, they treat everybody the same. A weakness is, they treat everybody the same,” Mr. Makin said.
“All companies are faced with trying to offer better benefits for their advisers,” added Mr. Makin, who will qualify for the highest end of the new bonus plan.
Richard G. Averitt III, chief executive of Raymond James Financial Services, acknowledged that the new bonus plan could be an excellent recruiting tool, “but it’s really for our top producers,” he said.
Reps and advisers who produce more than $1.4 million in fees and commissions still are eligible for the stock options program, along with the new deferred compensation plan, Mr. Averitt said.
The program, in part, was created out of necessity, he said. Because of recent interpretations in accounting standards regarding stock options and independent contractors, parent Raymond James Financial Inc.’s stock options program, which remains unchanged at employee broker-dealer Raymond James & Associates Inc., became prohibitively expensive, Mr. Averitt said.
When LPL announced its bonus to its payout last summer, Raymond James Financial Services had no plans to follow suit, he said.
But the changes in interpretations to accounting standards and stock options for independent contractors affected the thinking of executives with the firm, Mr. Averitt said.
“That tied our hands a little,” he said. “This could be a better choice.”
