Ah, autumn is here in New York. Trees shed their beautifully colored leaves and Thanksgiving is upon us. As the year draws to a close, the last wave of adviser moves will hit the trade press. And the wirehouses will tinker with their payout plans as inevitably as the changing seasons, invariably aggravating some segment of their adviser population.
As the wealth management business has evolved, some aspects of compensation plans have had to change. Compensation drives behavior so it is logical that brokers at the wirehouses should be encouraged to become true advisers by incentives to change to a fee-based business. But why is it necessary to create plans that are 30 pages long? And why is it necessary to change some aspect of these complicated plans every year? I want to be crystal clear: The trend over the last several years has been to take money away from advisers, either with blatant grid changes or by subtly deferring more income and making advisers pay more out their pocket for expenses.
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When I began recruiting in this niche in the 1980s, upfront money for advisers was at 30% and considered exorbitant and revolutionary. Prudential Securities gave a “50-50-50” deal (50% upfront plus a 50% payout for 50 months) and its recruiting numbers spiked. In the last 30 years, with competition for big producers growing more intense, wirehouse deals have hit 100%, 200%, 300% and now top out at nearly 400% for the best advisers. At every level along the way, I've heard executives complain that they cannot make money with deals this high. Yet the deals somehow get ever higher.
This arms race in upfront money continues unabated, with wirehouses unable to differentiate themselves enough to be able to recruit for less than the perceived current market value. Astute advisers who are being wooed routinely pit two suitors against each other in order to maximize their deal. As Marketing 101 teaches, in the absence of value, consumers default to price.
Senior leadership within these firms continues to preach the values of culture and loyalty. These values become mere platitudes when management is routinely changed at all levels of the organization. It is tough for advisers to be loyal and not seek their own greener pastures when they see their compensation cut to finance the next high-level recruit.
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I challenge the leadership of the wirehouses to think differently. Perhaps if you put it in writing that a new recruit will get a locked-in payout of, say, 50%, for the length of his or her deal, you might be able to recruit for less upfront money. Maybe then these recruits actually will stay for the length of their deals. Maybe your current advisers, knowing that their compensation is locked in, not deferred and not changing annually, will be less likely to take the call from an ardent suitor with a big paycheck.
Loyalty can be earned with actions that deliver a consistent, logical compensation structure. A sustaining, sticky culture that retains and attracts talent is nurtured by transparency and consistency. The best talent will want to work at this type of organization.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.
