Seven in 10 broker/dealer advisors say they’re satisfied with their current compensation packages, yet more than half of wirehouse advisors (62%) indicate their compensation plans are overly complex, according to a new report by Cerulli Associates. That compares to 38% of all broker/dealer advisors, which includes wirehouse, national/regional b/d, independent b/d, insurance b/d, or retail bank b/d channels.
Wirehouse advisors were more likely to be unhappy with their compensation, with 24% of them reporting dissatisfaction, compared to just 5% of advisors at national/regional firms and 7% at independent broker/dealers.
“Many firms, particularly the wirehouses, are consistently modifying compensation plans to achieve corporate-level initiatives and increase advisor productivity,” Cerulli states. “While these changes may benefit the firm, they can be difficult for advisors to navigate—especially if adjustments are frequent.”
Nearly half of wirehouse advisors (47%) said their firms alter compensation structures too often, compared to 15% of all b/d advisors. And while Cerulli didn’t ask how often firms alter plans, Marina Shtyrkov, associate director at Cerulli, said it’s generally an annual change, with bigger overhauls occurring every couple of years.
Some 27% of wirehouse advisors complain that cross-selling incentives are too prominent in their compensation plans, compared to 11% for all b/d advisors. One-third of wirehouse advisors identified the increased pressure to cross-sell banking and lending products as a "challenge" at their firm, Shtyrkov said.
Further, half of wirehouse FAs indicate that their compensation plans are based on factors outside of their control, such as tenure at the firm, compared to 22% of all b/d advisors. In fact, 30% of millennial b/d advisors (those between 26 and 41 years old) and 38% of wirehouse advisors report that account size minimums (meaning either no or reduced payout for smaller accounts) have limited their business development opportunities.
“These changes can also alienate practices in certain segments, based on their tenure, core client market, or specialties,” Cerulli states. “Targeted compensation strategies can enhance advisor retention and productivity if practices are motivated to achieve the highest payouts; however, this approach can also backfire if advisors view the thresholds as unrealistic or unattainable for them.”
Compensation is a top factor advisors look at when deciding whether to change firms, Cerulli points out. In fact, 45% of advisors who switched broker/dealers in the past three years cite compensation as a key reason for the move.
“These factors can impact not only advisors’ desire to switch firms, but also the transition to the independent channels, where they receive a higher payout and have greater control over their revenue,” Shtyrkov said in a statement. “Wealth management firm leaders must set realistic goals, without sacrificing opportunities for advisors to thrive—regardless of experience level or practice type.”
