Some Quotas Are Back

The Wealth Management industry, a subset of the Financial Services industry, has taken a lot of heat over the years. Some of it is deserved. Remember 8% loads, limited partnerships, biased research? Good times! That said, the securitization of mortgages which caused the massive losses in the industry had little to do with the Wealth Management industry or its practitioners; in many ways, they are amongst the victims here, and not at all at fault. But, as part of a suffering, maligned, bigger industry, and as the pressure to maximize revenues for a parent organization builds, I am seeing the big firms return to some old, questionable tactics. Wells Fargo Advisors, nee Wachovia, did not give retention bonuses to the Wachovia folks upon takeover. Instead, they put bonuses in place that are paid to Advisors if they hit an aggressive quota of a proprietary financial planning product. Now, I’m not going to argue that Financial Planning is a bad thing. And it certainly is better to put a quota on a process that is useful than on a product which may or may not be appropriate. However, put a quota on it, with a big carrot attached, and you will see some abuses. I’m told that there have been some falsified plans done by Advisors (eg. a financial plan done for “Fluffy the Cat”), enough to slow the payments to all of the Advisors who thought they had earned their bonuses. Morgan Stanley Smith Barney has given their newly minted complex managers a target number (read: quota) for the number of trainees that they are to hire by year end and for 2010. Presumably, senior management is focused on keeping head count numbers up. History shows that only 2 in 10 of these trainees will still be with the firm in two years. Maybe, just maybe, shareholders would be better served if the money spent (wasted?) on trainees instead be invested in the professional development of the existing Advisors. Morale within legacy Dean Witter offices was crushed years ago by the high turnover of trainees. That lesson is long forgotten in the quest to have the bragging rights to the biggest salesforce in the industry.