Small changes make big ripples when it comes to advisor compensation. Last month, Wells Fargo Advisors not only raised advisors’ monthly production hurdle by $1,000, the firm also discontinued its practice of allowing advisors to put money market mutual fund assets towards that threshold. While not a life-changing shift, some Wells Fargo advisors are unhappy with the results.
Although the firm’s advisors do not receive direct compensation based on balances, in the past Wells Fargo Advisors have been given credit for client assets in money market mutual funds to put toward their monthly production hurdle. Since money markets—typically used as a safe place to store money for short periods with almost non-existent yields—are generally not a moneymaker for the firm, Wells Fargo moved forward with plans to drop the program.
“We are removing the money market trails based on the low interest rate environment and money market returns for our clients and the firm,” a Wells Fargo spokesperson said. This policy will be reviewed annually, and if interest rates rise, the policy could change if the environment dictates.
Prior to the change, the firm gave advisors basis credit toward their hurdle, the Wells Fargo spokesperson said. That meant that if the firm gave advisors 10 basis points for a given fund, they would receive $10 for each $10,000 of total assets in client accounts in the fund.
The change, which one Wells Fargo advisor called yet another “haircut,” increased the monthly hurdle by an estimated $400-500 a person.
“They squeeze the advisors any way they can” the advisor said, adding that the money market trial changes really hurt everybody.
Further, the advisor pointed out that the firm has continued to raise the hurdle for the past couple of years. Under Wells Fargo's 2013 compensation plan announced in December, advisors must generate $12,000 in monthly fees and commissions before they can receive a 50% payout rate on their revenue.
But the move didn’t surprise recruiters, who called the move “par for the course” for the firm. These kinds of changes, while not substantial, do upset advisors, said Rick Rummage of the career-consulting firm the Rummage Group.
“It’s almost like wirehouses are trying to chase advisors off,” Rummage said.
This move could also put the advisor in a difficult position, Rummage added, saying it called into question whether advisors will continue to do what’s in the best interest for the client if their investments should be in money markets.
In addition to upping the production minimums, Wells Fargo advisors also rolled out a new client award program for 2013 in addition to its traditional long-term deferred compensation award,Wells Fargospokeswoman Erica S. Van Ross said last month.
“This is the largest potential award we’ve ever had in our compensation plan and is sizeable enough to trump the hurdle change and provide financial advisors with real upside potential in 2013,” Van Ross said at the time.
To qualify, advisors must achieve the net asset flows target or by obtain new clients and can potentially earn up to $100,000. Advisors also have the option to receive the total value of their acquisition award and their traditional deferred compensation award paid upfront in cash in the form of a loan and bonus structure.