In an effort to harmonize its legacy payroll systems, Wells Fargo Advisors LLC will create a standard withholding tax rate of 25% across its network of 12,000 advisers.
The move will take effect Jan. 1
The change could have a significant effect on the take-home pay of the firm's registered representatives. That's because brokers producing $1 million or more would have less withheld from paychecks, causing a higher tax bill later. Conversely, smaller producers, those generating $400,000 or less per year in fees and commissions, could see a whack to their monthly take-home pay.
Wells Fargo Advisors told brokers about the move this month, but many disregarded the information, sources said. “A lot of people didn't pay attention, but they'll pay attention when they get their first paycheck,” said one Wells Fargo rep, who asked not to be identified.
Some reps estimated that some advisers could see their net pay shrink by as much as $1,000 per month.
The firm is integrating legacy payroll systems, including that of Wachovia Securities LLC, which it acquired last year.
A Wells Fargo spokeswoman, Teresa Dougherty, would neither confirm nor deny reports about the new flat rate for advisers. She said that the firm started telling advisers about its “payroll conversion” over the summer. She stressed that “most of the compensation changes are positive,” such as an enhanced 401(k) match.
Wells Fargo Advisors is taking precautions to soften the impact of the change, said one industry source with knowledge of the firm's plan, who also asked not to be identified. The flat withholding rate is supposed to last for just one year, and Wells Fargo Advisors will offer brokers with cash flow problems a one-year interest-free loan, the source said. Starting in 2011, big producers will be given the option of withholding more income for taxes, the source said.
A quirk in how Wells Fargo Advisors and Wachovia Securities paid brokers and advisers is at the heart of the change. Wells Fargo pays brokers twice a month, while Wachovia Securities reps get one paycheck a month. The new system is an interim measure to integrate the two approaches.
Ms. Dougherty also stressed that the new compensation structure will impact the private client group, or the financial advisers employed in the traditional brokerage channel at the firm. It does not affect the independent channel, Wells Fargo Advisors Financial Network.
Payroll changes that involve tax withholding apply only to W-2 financial advisors employed with the firm, she added.
Ms. Dougherty also stressed that the new compensation structure will impact the private client group, or the financial advisers employed in the traditional brokerage channel at the firm. It does not affect the independent channel, Wells Fargo Advisors Financial Network.
Payroll changes that involve tax withholding apply only to W-2 financial advisors employed with the firm, she said.
