Wells Fargo tweaks deferred comp, pay on stock trades

Wells Fargo Advisors’ private client group has made small tweaks to its 2015 comp plan that provide some new deferred compensation incentives, while retracting or modifying other payouts.
The plan, which was rolled out on Wednesday to the firm’s approximately 11,000 advisers in its employee channel, is keeping the basic payout thresholds in place while making slight changes on the margin. The result will likely increase deferred compensation for some advisers, although it will take away a bonus for client acquisition and increase the minimum that advisers must charge to be paid for a stock transaction.
“Financial advisers really want more consistency on how their compensation looks year-to-year,” said David Kowach, who has been head of the firm’s private client group since 2012. “Most of the changes we made were really in the deferred structure.”
At Wells Fargo, the majority of advisers’ pay is determined by monthly revenue thresholds. Advisers are assigned one of three thresholds — $13,250, $12,500 or $11,500 — based on meeting meeting certain “best practices” criteria such as being a high performer or bringing on new assets. They earn 50% of their gross production after meeting their threshold, but earn 22% on profits below their threshold. Most advisers are at the $12,500 hurdle, Mr. Kowach said.
The firm is the last of the wirehouse firms, including Morgan Stanley Wealth Management, Bank of America Merrill Lynch and UBS Wealth Management, to announce its compensation plan.
Wells Fargo’s changes were relatively small by comparison to some of the others, according to one Wells Fargo manager.
“Compared to [what] you have to put up with at other places, it’s pretty good,” the manager said, speaking on condition of anonymity.

DEFERRED CHANGES

The changes in deferred compensation were the main modifications that Wells Fargo made this year, Mr. Kowach said. The firm has made slight increases to the base awards, which now begin at 0.5% for advisers who are bringing in at least $500,000 a year, added an additional 0.5% for those who have been at the firm for 15 years or more and boosted possible deferred pay for meeting so-called best practices thresholds.
The best practice award offers up to $20,000 for bringing in $5 million in fee-based advisory assets, $6,000 in lending credits and/or $5 million in new assets either from existing households or new accounts. Advisers can earn more for meeting all three.
In modifying the best practice award, however, the firm did away with its so-called client acquisition award, which provided a $25,000 deferred bonus for bringing in at least six households with $250,000 or more.
Wells Fargo also changed how it pays its managers this year to add a deferred component. The average manager running a large or mid-size complex will likely see around 12% of his or her pay now deferred, according to Mr. Kowach.
The deferred compensation is paid out in a lump sum after five years. Morgan Stanley, which announced changes last month that will result in more of its brokers’ pay being deferred, pays out in equal increments, but over eight years. UBS has a six-year vesting requirement.

PAYOUT ON EQUITY TRADES

Wells Fargo is also bumping up the amount that brokers must charge on equity trades for clients in commission accounts to $125 from $95. They can still charge below $125, down to $55, but will not be paid.
There will be no changes to minimums in fixed income, options or mutual fund charges.
Mr. Kowach also pointed out that the firm is still one of the only firms that does not impose minimum asset amounts on which it pays advisers. Merrill Lynch said it would stop paying most advisers on households under $250,000. The others do not pay on clients below $100,000.

Related Topics: Wells Fargo & Co.