American Express Financial Advisors (AEFA) is hoping to become more competitive in the independent contractor arena by letting reps choose among several new work options.
The new career platforms, scheduled to be unveiled later this year, will allow advisers to select an independent work option that would more than double their current 40% payout but shoulder reps with more of their own expenses. AEFA advisers are already classified as independent contractors, but have a payout similar to broker employees.
Under the new plan, one option would allow AEFA reps to become employees with a "forgivable" draw against commissions of $13,000 to $30,000 a year--essentially a salary. Gross above the draw would be paid out at around 30%. Reps working under this option would qualify for a bonus and a benefits package, including a 401(k).
A second option would allow reps to work as independent contractors under the AEFA label, and receive an 85% or higher payout. Reps would have to pick up more expenses than they do under the current independent contractor arrangement.
Reps will be given a third alternative sometime in mid-2000 that will enable them to disassociate from AEFA and affiliate with AEFA's new subsidiary, Securities America, which offers near-100% payouts but less support.
Most current AEFA reps are expected to choose either the independent or Securities America option. Advisers have until December to decide between the first or second options, then six months later they can affiliate with Securities America--but only with AEFA management's OK.
While the new independent career choices will provide greater product diversity and payout, at least a few reps believe the offer seems almost too good to be true.
"There's a lot of speculation as to how American Express is going to be able to pay everyone at levels they say they're going to be paying people, and still maintain their return on equity," says one skeptical adviser in the Midwest. "Everybody's waiting for the rug to be pulled out."
The Midwest rep is also leery of a noncompete agreement firm officials say would be in effect for 12 months after an adviser moved from AEFA to Securities America.
Other reps were more positive about the coming changes, however. "I think it's a great idea," says Frank Goyette, a sixth-year AEFA rep in Ponte Vedra Beach, Fla. "Right now we get nickeled-and-dimed to death. We pay for services we don't use. In the future, we'll be able to choose only the services we need."
Advisers who go independent will be responsible for choosing their office location, hiring their own staff and paying for insurance benefits. The firm hopes the third platform will help stem the tide of defections from AEFA to more lucrative independent outfits.
"Advisers wanting the option of complete independence now leave to go to other companies," says Steve Kumagai, senior vice president of field management in Minneapolis. "We've had substantial disintermediation [departure of assets]. ... We think we may see several hundred advisers go into [Securities America]."
AEFA could lose some of its grip on the sale of proprietary products. Currently, 80% to 90% of the products sold through the firm are proprietary IDS funds. Reps will be given more products to choose from in the new platforms.
"We will see the percentage of proprietary products fall," Kumagai says. "But at the same time, we expect total sales of proprietary products will increase."
