How much more change can we expect to see in the structure of the wirehouse branch management system—and in manager compensation? It wasn’t so long ago that wirehouse branches were managed by individual branch office managers who were basically non-producing, well-compensated, and highly revered. But, with continual corporate mergers, and the advent of “complexing” branches to cut expenses, the traditional branch office manager is becoming obsolete.
The bottom line, say industry experts, is that all of the wirehouses are cutting branch manager compensation in their own way. “It’s a necessity,” said one industry insider who asked not to be named. “I think a lot of branch managers were overcompensated it the past. Firms don’t need as many managers as they used to, and they need to cut costs.”
Rick Peterson who heads Spring, Tex.-based industry recruiting firm Rick Peterson & Associates says on average, a producing BOM will get approximately 1 percent of the revenue for his office in managerial compensation. So, if he manages an office with $5 million in annual revenues, he’ll be paid approximately $50,000—plus any discretionary bonuses, and the income he generates from production.
But, of course, pay practices vary and are constantly changing. At Morgan Stanley Smith Barney, for example, most smaller branches are headed by producing managers, and offices with 10 or fewer advisors are headed by what the firm calls resident branch managers. A couple of resident managers, who asked not to be named, say that folks in their position are compensated for their management duties—not by a percentage of branch revenues or bonuses, but only by advisor headcount.
“We get a couple of hundred dollars per rep—per month,” one said. As such, a “resident” manager overseeing the maximum of 10 reps would make about $24,000 per year—plus whatever his book of business provides.
They say they question how and why MSSB distinguishes between producing managers and resident managers, since both jobs have managerial duties like coaching and recruiting, yet compensation for them differs significantly.
“Producing managers manage larger offices up to a certain revenue level,” said James Wiggins, Managing Director of MSSB Corporate Communications. “They are paid—in addition to their FA compensation—a salary, certain formula-driven incentive compensation based on such metrics as revenue growth, FA growth, etc., and a discretionary bonus.”
“Resident managers are producing FAs who are paid to perform certain managerial duties in a small office—generally one with 10 or fewer FAs. They receive a stipend per FA in their office, plus the compensation they generate as an FA.” The firm declined to comment on the size of the stipend or the total number of managers in any category.
The latter compensation formula was news to many industry insiders. Still none seemed too shocked by it. “I wasn’t aware some branch managers were compensated only by FA head-count and their own production,” says Chip Roame, who heads Tiburon Strategic Advisors, a Calif.-based industry research and consulting firm. “But, it does make sense economically. Wires have been pushing managers of smaller offices back into production. This is one way to cover the managerial responsibilities with a relatively fixed cost for them.”
Andre Cappon, who heads the CBM Group—a New York-based international research and consulting firm—had not heard of this, either. “I didn’t know about the specifics of their compensation, but I know many wirehouse BoMs are being forced back into production and it is not going well for them.”
While Roame concedes this is far cry from the days of huge managerial compensation that some of these folks once had, “you’ll still see plenty of people raising their hands for the chance to serve in such a role—since being a manager is still prestigious,” he says.
Tony Mattera, SVP of Communications at Wells Fargo Advisors says all of that firm’s managers (branch, complex and market managers) are compensated on the same basis. They receive a salary, based on the number of FAs they manage (the more FAs, the larger the salary.) And, there’s a variable component based on the financial performance of their branch, complex or market against their goals.
UBS declined to comment on branch manager compensation at its firm. But, in January, it made news when it unveiled a new pay plan for its branch managers that includes a slight raise in base salary, but also incorporates more subjective measures into the pay formula, which many fear will result in lower compensation. (See The Management Letter– FEB. 2011: As 2011 Begins, Both UBS and Morgan Stanley Tweak Branch Manager Pay). So, managerial compensation there isn’t based on headcount alone.
A spokesperson for Bank of America said that Merrill Lynch’s branch managers are compensated based on the achievement of “several strategic and tactical factors” of which “FA census is just one.”
Try Making Lemonade
Peterson stresses there are still many advantages to the job, regardless of reduced compensation and pushes toward production. “If you’re managing a small office with $5 million or $6 million in annual revenues, you’re typically dealing with some pretty experienced advisors who need less coaching. Your managerial responsibilities are also fewer. Things like compliance and advertising are handled by the complex manager. You still have to recruit but, in small offices, there aren’t many empty chairs to fill. All of these factors free you up to produce pretty much to your heart’s content,” he said.
Alongside the prestige of being a branch manager, he points to other perks like expense accounts, and typically getting first crack at walk-in clients and those who remain when their FAs leave. “And, you’re in line for becoming the next complex manager,” he says.
Bing Waldert, director of Boston-based Cerulli Associates, is more cautiously optimistic. “There are essentially no new advisors entering the business, which gives managers going back into production a bit of an advantage. And, most branch managers have built books before—and have helped plenty of advisors do it, so they know what to do.”
But, he stresses there are still managerial responsibilities to tend to. “The question is, ‘Can you free up more time to build a book? Can you balance that well enough to still draw managerial compensation?’ If you can’t, there aren’t many alternatives other than going into production full-time or leaving the business.”
