2021 COMP: Firms Likely to Keep Grids Intact Amid Covid Uncertainty

Brokerage firms may tweak 2021 compensation plans at the edges but will not make core changes to the payout grid because of continuing challenges raised by the coronavirus pandemic, consultants and industry recruiters predict.

“It’s a tough environment with Covid to introduce a lot of major changes,” said Andy Tasnady, a compensation consultant based in Long Island.

Because changes in annual comp plans are usually to the downside, the stasis should be relatively good news for advisors, he said.

Morgan Stanley and UBS in their 2020 plans raised the revenue hurdles brokers must hit to qualify for higher payout percentages, and Wells Fargo Advisors and RBC Wealth Management raised client account minimums.

Once the force of the virus crisis was felt, however, many firms modified their tougher 2020 bogeys.

UBS postponed tougher team-bonus qualifications and Morgan Stanley its raised grid hurdles until October, while Wells adjusted its small-account penalty, RBC suspended its account-size penalty and Merrill Lynch eliminated a midyear team-payout test and pulled its plan to increase the number of new households brokers must have to avoid a payout penalty.

Raymond James Financial, whose fiscal year ended September 30, has already told managers in its employee brokerage unit that it will not be making core compensation changes despite looking for ways to cope with the economic pressures of the Covid-19 economy, including layoffs.

“I would think that this year in the midst of a pandemic that firms would be very reluctant to make substantive changes to their compensation,” said New York-based recruiter Mark Elzweig. “This would be a singularly bad time to start whacking people with cuts to the grid.”

Tweaks to encourage more efficient work practices—such as incentivizing advisors to enroll clients into digital programs,  use artificial intelligence-designed apps for sharing investment ideas, or create more financial plans locking customers to firms—will likely show up in 2021 plans, according to consultants.

“What we’re seeing now is firms incorporating more qualitative and behavioral components, supported by data science,” said Patrick Kennedy, co-founder of PriceMetrix, a pricing data and consulting firm owned by McKinsey. “Many firms are paying for the behaviors that are going to cause advisors to grow and succeed.”

Grid-based payouts will continue to be the primary sales motivator for brokerage firm advisors, but Kennedy is hoping that the redesign pause necessitated by the pandemic will motivate firms to rethink the often disruptive and complex changes made to annual compensation plans.

“It’s a strange annual ritual where advisors get the comp plan and, like getting the government budget, they close their office door for four hours to compute what it means for them,” he said.  “Over and over again, I’m hearing executives at firms asking how they can make it simpler.”