As any stockbroker knows, it isn't just online and institutional brokers that offer discounts.
Brokers at full-service firms have long offered commission concessions to keep their top customers happy, and their firms more or less have acceded if the broker has met a minimum level of revenue production.
In tough times, however, firms are getting tougher. Under a policy that took effect at RBC Wealth Management last Monday, brokers can discount as much as they want only on ticket charges generating more than $500 — twice the $250 level that was previously in effect. They take a hit to their payout on large discounts below $500.
“It's massive to me,” said one RBC broker, who asked not to be identified and who estimated that his gross payout of about $500,000 could fall by $25,000 because he often cuts the firm's posted commissions by half for active traders. “They're forcing out the transactional brokers with wealthy, sophisticated clients.”
Jonell Rusinko, an RBC spokeswoman, confirmed the change but declined to comment.
RBC, like many full-service firms, doesn't pay brokers anything for trades generating less than $75 in commissions.
Under the new plan, brokers can offer up to a 10% discount on ticket charges of $75 to $95 but will be paid a maximum commission rate of 25% and get an additional 10- to 25-percentage-point hit to their payouts if they go over the discount limit. They can cut up to 20% without penalty or adjustment to grid payouts on tickets between $95 and $250 but are penalized 10 to 25 percentage points if they discount more than that.
The discount limit rises to 30% on trades generating $251 to $500, without grid adjustments, but if they exceed the discount limits, they are penalized another 10 to 20 percentage points.
RBC also has eliminated the employee match contribution in its Wealth Accumulation Plan, under which it contributed up to 25% of a broker's pretax contribution to a deferred retirement plan, up to a preset cap. To compensate, the firm has added 1% across-the-board productivity and loyalty bonuses, subject to a five-year vesting period, to the payout of brokers who produce $400,000 or more a year.
To be sure, RBC hasn't followed the lead of some wirehouses that have imposed household wealth quotas.
Merrill Lynch & Co. Inc., for example, won't give a broker any pay for households (defined as three generations) keeping less than $50,000 at the firm, and limits payouts to 25% on households with $50,000 to $100,000. Merrill in the near future is likely to raise even the minimum payout to $100,000 accounts, said sources who spoke on the condition of anonymity.
A Merrill spokeswoman didn't return calls seeking comment.
Recruiters said that firms have long managed behavior by compensation, and noted that the RBC changes send a message that the firm values fee-based relationships over transactions and is penalizing sub-$400,000 producers. In an internal document, RBC told brokers: “RBC Wealth Management continues to discourage discounting, because we believe that your clients receive a high level of value from the knowledge, expertise and advice you provide.”
But brokers view discounting as a competitive necessity, and tweaks to the policy at a time when sophisticated clients can easily switch to online trading could create broker defections, some recruiters said.
The policy is known as “discount sharing,” meaning that the broker shares in the firm's revenue loss.
E-mail Jed Horowitz at [email protected].
