ONE WAY TO BLOCK POACHERS — AMEX CATCHES ON: IT’S RAISING ADVISERS’ PAY

American Express Financial Advisors is remaking itself to look more like the independent brokerages that have been poaching its best advisers.

Beginning early next year, it will boost compensation for its planners and allow them to sell more mutual funds and insurance services from outside firms.

Sources inside the Minneapolis firm say executives have been telling planners in recent weeks that payouts will increase to 85% of commissions — generally in line with compensation at independents.

That would be a substantial hike, since AmEx planners get somewhere between 45% and 55% of commissions today. (Top producers can earn more through deferred bonuses.)

“We are definitely going to increase the payment,” says senior vice president Norm Weaver, an architect of the changes. “We could end up paying a little less than (85%) or a little more than that.”

The goodies don’t stop there. Also under consideration, say two sources inside the company, is a 25% hike in AmEx’s “service fees” — essentially trailing commissions planners receive annually after making a mutual fund or insurance sale. For example, the IDS funds, AmEx’s proprietary fund group, pays planners about $1.50 in service fees per $1,000 in client assets — well below industry norms.

Mr. Weaver declined to comment on the trailing commissions or any possible changes.

The pay increase will come at a price, though. AmEx will impose a new flat charge each month on its reps. The charge being talked about now is $390, although that could change, a spokeswoman says.

Also to be determined are fees planners will have to pay for items like computers and promotional materials. The AmEx spokeswoman says those fees, which planners pay today, will continue in some form, although their levels may change, given that AmEx is instituting the new monthly charge.

Several former and current AmEx planners, speaking on condition of anonymity, say the company is moving in the right direction. But they worry that the various AmEx charges will eat away at the promised increases in their payouts.

Others are more skeptical.

“It would certainly be a more competitive package than they offer now,” says Chet Helck, senior vice president at Raymond James Financial Services in Atlanta. “Would it be the most attractive deal on the street? That depends on the answers to questions we don’t have answers to now.”

Mr. Weaver of AmEx promises plenty of answers. “The next two years are going to see the biggest changes in this company’s history.”

Among the biggest: AmEx plans to add to the 22 outside mutual fund complexes its planners can sell, as well as to open up the insurance choices. They will include variable annuities and variable universal life policies, popular retirement and estate planning tools that today are confined to the IDS product line.

Traditionally, the company has viewed its advisers mainly as a sales force for its IDS mutual funds and insurance and given them access to few outside vendors, particularly on the insurance side.

AmEx has clung to that model while most all other big brokerages have softened the proprietary focus by, for example, no longer paying their brokers more to sell in-house mutual funds.

Says Mr. Weaver: “It would be nice if our (product) choice looks no different than Securities America’s” — the Omaha, Neb., independent brokerage AmEx bought a year ago.

The changes appear to be a recognition that AmEx’s old model won’t work, particularly as it tries to expand its adviser roster to 20,000 by the year 2007.

stemming exodus of veterans

AmEx has 9,000 planners today, along with another 1,200 brokers from Securities America. Not counting those reps, AmEx’s field force has barely increased in the last two years. That’s due to an exodus of veteran advisers to independent brokerages, which lure them with higher payouts, more product choice and more autonomy.

Still, the adjustment will be wrenching. American Express Co.’s financial planning unit derives its hefty profits –$818 million on $5.1 billion in revenues last year — principally from the fees charged by IDS’s mutual funds and insurance products. Hiking adviser payouts and giving reps more product choice inevitably will cut into those profits.

The bet, then, is the changes will help AmEx keep and attract more advisers, boosting sales volumes to make up for thinning margins.

Despite the risks, the strategy shift has been long-anticipated. AmEx executives have talked for more than two years about creating three “platforms” for its reps — a high-payout “independent” channel with bare-bones service, a retooled “branded” system where planners could use the AmEx name and receive more services, and an “employee” option, where reps would be salaried.

The company took a major step toward that goal when it bought Securities America, which made its reputation by offering the highest payout, at 100% of commissions, among independent broker-dealers.

But AmEx, fearing a flood of emigres to the new sister firm, hasn’t allowed its planners to move over yet, buying some time to make its system more alluring.

Waiting to ensure its computer systems survive the year 2000 bug, AmEx plans to begin putting the changes into effect in March 2000. Mr. Weaver hopes soon thereafter to open the doors to Securities America, although he says the move depends on computer-technology improvements that will allow AmEx client information to be transferred.

When the new system’s in place, advisers should expect to be able to go to Securities America and take their clients with them, he says. He also denies rumors that planners will have to pay AmEx to move their clients over to Securities America.

Still, the company doesn’t expect to change its policy of forcing reps to sign non-compete agreements that bar them from soliciting their clients if they move to other brokerages.

“We’ll look at that,” Mr. Weaver says. “My guess is there won’t be a change.”

increase in lawsuits

The non-compete contracts have been the source of much friction between AmEx and its advisers, as the company in recent years has filed a stream of lawsuits against former planners that the defendants contend are aimed at scaring existing reps into staying. AmEx says it aggressively enforces the contracts to protect clients, as well as its substantial investment in training advisers.

AmEx doesn’t appear to be changing its ways, notes Anthony Paduano of New York law firm Smith Campbell and Paduano. “In the past six to eight months, they have increased the frequency and the aggressiveness with which they’ve gone after planners who leave.”

* Richer payouts Sources say American Express planners will pocket 85% of commissions, up from the current 45% to 55%.

* Happier trails Being mulled: a 25% hike in the annual trail fees planners get after making a mutual fund or insurance sale.

* Broader brands Plans call for expanding non-AmEx fund, annuity and insurance offerings.