The new work options at American Express Financial Advisors are contributing to the company’s financial weakness.

American Express announced April 2 that it expects to post lower earnings (due out April 23), primarily from losses on high-yield bonds held by its American Express Financial Advisors (AEFA) unit.

But the company said the expected 80% decline in AEFA earnings was also due in part to higher rep compensation under its new three-tiered platform strategy adopted last year (see June 2000 RR, Page 32). The new work options give the independent AEFA reps generally higher payouts. The move was designed to stem turnover.

Excluding losses from junk bonds, first-quarter earnings at AEFA are expected to be down approximately 30% from a year ago.

AEFA will not disclose how much was lost in the first quarter due to higher compensation levels, but spokesperson Tom Joyce still praises the program.

“It’s one of the most innovative compensation programs out there,” Joyce says. “It’s worked well as far as retaining brokers. We’ve shown an 11% gain in retention levels. It’s still a work in progress. We’re evaluating it.”

“I’m sure most planners who are working as an AEFA franchise are making a little more” than a year ago, confirms an AEFA planner on the East Coast.

AEFA also said it will take a $67 million charge in the first quarter for deferred acquisition costs for variable insurance products. The charge reflects lower anticipated profits and persistency for variable life and annuities due to the market decline.

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