2021 COMP: Wells Raises Monthly Hurdle Rate, Adds Deferred Bonus Opportunities
Wells Fargo Advisors for the first time in seven years has raised the monthly revenue its brokers must produce before their payouts jump from 22% to 50%.
Wells’ decision to raise the payout bar belies forecasts from compensation consultants who said firms would be reluctant to rile producers with beefed-up requirements while the Covid-19 pandemic rages and advisors are subject to work-from-home constraints.
Wells Fargo managers are under pressure to reduce expenses, however, as the fourth largest bank company continues to chafe under regulatory growth caps, fines and penalties related to scandals in which quota-driven bankers created fake customer accounts and unasked-for services.
The San Francisco-based bank company in October quickly reversed a plan to end 401(k) retirement plan matches for employees earning $250,000 and higher. The plan drew particularly strong backlash from financial advisors.
Executives in the bank’s wealth and investment management division that includes Wells Fargo Advisors downplayed the 2021 hurdle increase.
“Relative to the entirety of the program, it’s a minor change,” said Richard Getzoff, head of the private client group’s branch network. (As a side note, he also said, “there’s not a firm in the industry that has a better 401(k) match than Wells Fargo.”)
The 2021 compensation plan adds additional ways for advisors to qualify for deferred bonuses by growing annual net asset flows from clients by at least $2 million and hitting “full balance sheet” sales goals that include loans and other bank products. (It continues to offer the cash bonuses, which vest over five years, for reaching revenue targets.)
Advisors on teams have additional ways to qualify for higher payouts under the 2021 plan, and younger advisors will no longer be limited to inherit clients from a single advisor who plans to retire through Wells Fargo Advisor’s Summit “sunsetting” program.
To moderate the sting of the higher monthly haircuts, Wells Fargo managers can point comparatively to Merrill Lynch’s decision for the second consecutive year to eliminate payout entirely on the first 3% of monthly revenue credit. (Merrill’s 2021 plan keeps grid hurdles and payout levels unchanged from this year’s plan.)
Like many other national wealth management firms, Wells is also using its compensation plan to discourage advisors from working with small-account customers. It is restoring in 2021 the 20% across-the-board payout on households keeping less than $250,000 in their investment accounts, after modifying the penalty earlier this year.
Other firms also have attacked small-account payouts.
Merrill Lynch’s 2021 compensation plan eliminates advisor pay entirely on household accounts under $250,000.
RBC Wealth Management-U.S. has restored the zero-payout policy on customer accounts with less than $100,000 that it had suspended because of the pandemic.
UBS Wealth Management U.S.A. and Morgan Stanley Wealth Management have not yet announced 2021 compensation plans, but raised grid tiers in 2020 that will require many brokers to produce more fees and commissions next year to match their 2019 payouts. (Morgan Stanley delayed the higher hurdles because of Covid-19, but initiated them in October.)
To qualify for Wells Fargo’s lowest monthly “premier plus” hurdle rate of $12,500, advisors as of the end of 2020 must rank in the top quintile of their peers as measured by total gross revenue, have 75% of their business with household accounts of $250,000 or higher, complete the firm’s Delta practice management program and booked revenue 15% higher, or up by $150,000, from 2019.
To qualify for the mid-level “premier growth” hurdle of $13,500, advisors must achieve one of the four criteria required for premier plus advisors.
All other advisors receive the 22% rate on the first $14,250 they produce before incremental revenue gets paid out at 50%. (The monthly grid rate falls to 19% on revenue up to the hurdle for brokers with eight or more years of industry experience who produced less than $300,000 in 2020).