Although market conditions are making the life of financial advisors more complicated by the day, answering the question of what planners will be paid in 2022 is quite simple.
In many cases, it will be the same as last year, with the exception of inflation which potentially plays with payments. And where companies have made adjustments, consider hemming those trusty pants instead of having a new suit made from scratch.
The reason, industry insiders say, is an environment of increased competition, heightened uncertainty and many options for advisors.
“People don’t want to rock the boat too much by changing the grid. It’s kind of like what we used to say growing up in New York. To do that would be like stepping into a New York City subway and getting your hands on the third rail. You’re going to get fried pretty quickly,” said recruiter and consultant Mark Elzweig. “The reason for that is that historically most wiring houses start monkeying around with payment each year from Thanksgiving…which can really add a lot to their bottom line. It was kind of like an annual chicken party where they say, “We’ve reduced your payment a bit, but you’re not really going to leave for that reason, are you?” The reason they stopped doing this is the movement in the industry.
Financial planning annual advisor base salary analysis — conducted by compensation consultant Andy Tasnady and his firm, Tasnady & Associates — reveals changes that won’t radically reshape the compensation landscape in 2022.
For a breakdown of advisor compensation at different production levels:
– Pay for the producer of $400,000
– Pay for the producer of $600,000
– Pay the producer a million dollars
– Pay the producer $2 million
According to Tasnady, the most notable change is UBS streamline its pay schedule to a formula based simply on 12 months of production and duration, with higher account minimums and team incentives. Tasnady said that, on average, the adjustments represent about 1% additional earning opportunity for top producers.
But the higher minimums at UBS mean less for those producing at the lower end of the spectrum.
“When you look at their change, they’re really saying they want people at $500,000 and up,” Tasnady said. “It’s a bit small, but they’re definitely more inclined to try to keep their most productive advisors happy and try to give them more opportunities, and they’re now paying the lowest amount for advisors at the level of $400,000.”
In order to increase its retention and stop more than a year of bleeding from adviser, Wells Fargo launched a simpler compensation plan that removed three hurdles that determined the base payment rate based on monthly revenue to one for the Private Client group. The new plan also removes a penalty on certain referrals received from bank brokers and increases certain possible deferred compensation incentives.
Advisors in the Wells Fargo Private Client group will receive 22% of the first $13,500 they generate in monthly revenue, with a 50% rate on any other activity. For enhanced compensation, advisors will qualify individually if they generate at least $2 million in revenue over the past 12 months and growth of $150,000 or more over the prior year.
For teams, each advisor must have an average of $800,000 or more in annual revenue while having an agreement on file to share 75% or more of their combined revenue.
Other changes include e-commerce loans and incentives added to the Morgan Stanley grid, and Merrill makes two adjustments in an effort to support advisors who remain with the wiring center as others leave
Merrill brokers assigned to an account transferred from an outgoing colleague will receive the full 100% payout in the first year, instead of the previous level of 50%. In addition, the grace period to keep assets in-house without any penalty in the event of loss of transferred accounts is increased from six months to one year.
Elzweig said plans that incorporate these kinds of loyalty incentives are a result of what independence means in wealth management today. He said many travel advisors in 2022 are top producers, and being an RIA has become a lofty goal for many people.
” It’s doable. It’s fashionable. It’s not mysterious. And we’re not going to see any more massive slash and burn cuts in networks just because advisers know that going independent is a very easily enforceable choice,” he said. “Each councilor has friends who have gone to the other side and who are quite happy. It’s a routine choice at the moment, and it’s no longer a pioneering event.
Elzweig added that he views today’s comp grid changes more as “behavioural modification programs.” He cites as an example of plans that make it more lucrative to be part of a team and explains why companies might push such behavior.
“With the teams in particular, I think they feel that the business is very complex and that a team can do a better job serving customers than any individual. And secondly, it’s not not lost on them that teams are harder to move,” Elzweig said. “There’s always someone on the team who’s been there for 40 years, who will probably be buried with the company flag and who never go anywhere. But the positive part is that with an integrated team, there is more of a built-in succession plan for older advisors who can transfer their business to younger advisors.
This approach provides opportunities for advisors to stay put as the industry evolves. A Cerull report estimates that nearly 103,000 advisors will retire over the next decade, representing nearly 40% of the industry’s current workforce of advisors. More than 26,000 advisors – or 26% of the total – advising on $1.8 trillion in assets have no succession plan.
Tasnady also considers the protection and development of teams as the main objective of the greatest companies. And from an advisor’s perspective, the “big transition” means a clear path to increasing your income.
“Advisors are always retiring. It’s a mature industry, and it creates a big opportunity for mid-career or younger advisors to basically reap the revenue,” he said. “If you’re in a place like Merrill Lynch and you’re the 45-year-old who knows the 63-year-old on your team is about to retire…you benefit from the assets and those clients that are now being transferred to you.. So that’s one of the main reasons why many advisors stay at the big firms, because there’s a lot of money there and there’s a lot of money transitioning .
For Elzweig, it’s a question of “what else can you do?” He said major changes, such as the move to paid business models years ago, are not expected in the near future, creating an environment where no one tries to fix what isn’t broken.
“Network rates have kind of reached equilibrium, and I don’t think we’re going to see a major distortion of that,” he said.