Why doesn’t Wells Fargo expand its ‘Profit Formula’ — and why haven’t other firms copied it?

Are you familiar with the Wells Fargo Profit Formula program? It was designed and originally launched by Wheat First, the Richmond, VA based regional broker dealer bought out by First Union in 1997. Wachovia and First Union merged in 2001, and Wells saved Wachovia from collapse in 2009.

Are you familiar with the Wells Fargo Profit Formula program? It was designed and originally launched by Wheat First, the Richmond, VA based regional broker dealer bought out by First Union in 1997. Wachovia and First Union merged in 2001, and Wells saved Wachovia from collapse in 2009. (Tracking the myriad firms that make up the current Wells Fargo can give you a big headache….but I digress).
Wheat First was truly one of the classy, progressive regional firms with a productive and loyal group of Advisers. They invented Profit Formula where the Adviser manages his own expenses after paying the firm a percentage off the top. Here’s how it works: Wells captures 25% off of the top line of what the Adviser produces. The Adviser is then charged expenses on his “schedule A” which allocates expenses for shared office expenses, technology, insurance, travel and entertainment, staff, etc.
I’m told that the average Profit Formula Adviser is netting around 55% (some a bit more, some a bit less). Want to give your assistant a $5,000 bonus? Go right ahead; you’re paying for it. Want to take that trip to Los Angeles to go after that big prospect? No problem. Since the Adviser is paying for all these expenses out of his or her own pocket, he or she is forced to actually run their practice like a true business. The stereotype of the Big Wirehouse Adviser is the prima donna in the corner office demanding more and more of his or her Branch Manager. In Profit Formula, the Adviser behaves like a partner in their business and not a prima donna employee. I don’t have any hard data, but anecdotally (I am a headhunter after all) attrition amongst Profit Formula teams is unusual, if not downright rare. And the 350 or so PF teams represent, I’m told, over 20% of the total retail revenue within the Wells Fargo Private Client Group. In other words, as a group, every firm would want them and nobody would want to lose them.
Seems like a great gig, right? If you are a big producer, the appeal is clear. Manage your own expenses, set your own payout, and be “independent” within a wirehouse firm. Yet, Wells Fargo is no longer allowing “mainstream” Advisers to convert to Profit Formula. And, they no longer recruit to it. The only thing that I can guess bothers them about the program is that the margin of the big producers does not grow along with their revenue; it stays fixed, by definition, at 25%.
If the big firms are looking for ways to differentiate themselves, why wouldn’t they adopt this type of model? As far as I can tell, only Raymond James has a similar model (called Advisor Select).
What am I missing? What is Wells (and their competitors) afraid of?