UPDATE: Wells Excises Loans from Brokers’ 2017 Incentive Plans
(Corrects fifth paragraph to say Wells is eliminating, not keeping, its “look-back” option that lets brokers qualify for higher monthly pay; corrects tenth paragraph to say that small-household payout is falling to 20%, not 22%. Adds in 11th and 12th paragraphs that Wells will not pay brokers in 2017 on any retirement accounts for themselves and close family members.)
Brokers at Wells Fargo Advisors will not be able to bump up their monthly payouts and annual bonuses in 2017 by selling mortgages, credit lines and related products from their scandal-plagued bank partners, said people who have been briefed on the compensation plan.
The brokerage firm delivered the 2017 comp plan to the more than 11,000 brokers in its private-client group after the market closed on Thursday.
Aside from eliminating lending and credit incentives, the plan will change only slightly from the one currently in place, said the people who have been briefed by senior management on iterations of the plan but have not seen the final document.
A Wells Fargo Advisors spokeswoman did not respond to a request for comment on the 2017 plan.
The core part of Wells brokers’ compensation—a 22% payout on the first $11,500 to $13,250 they produce monthly and 50% on revenue above the hurdle—will not change in 2017, the brokers and managers said. The monthly hurdle will continue to be tiered to the previous year’s production, with lower hurdles for larger producers. (Wells eliminated an option in place this year that let brokers qualify for lower hurdles retroactive to the beginning of the year if they reached certain production levels by midsummer.)
The decision to eliminate lending awards is not surprising given the near-daily aftershocks that Wells has been suffering since agreeing in September to pay $185 million over allegations that the company’s hyped-up sales culture induced employees to open thousands of unsought bank and credit-card accounts to hit quotas and bonus goals.
Removing the incentive for brokers to sell bank products to their relatively prosperous clients is a painful development for the parent company, which has boasted that cross-selling is stronger within its wealth and investment management division than at any other part of the company. While brokers hate to lose pay incentives, many at Wells and other bank-owned brokerage companies have had mixed feelings about expanding their product quivers from investment advice to loans and credit cards and turning over clients to branch bankers.
Wells brokers currently can sell bank products to qualify not only for lower monthly payout hurdles but also for deferred bonuses, with awards ranging from $2,000 to $100,000, according to the 2016 compensation plan. They also receive a “premium” award if they hit growth targets on loans, advisory fees and wealthy households (over $250,000 of assets), with the deferred bonus ranging from $10,000 to $140,000, depending on gross revenue.
Wells Advisors has eliminated those deferred-pay “best practices” awards for 2017 but has expanded the size of deferred bonuses for brokers who grow fees and commissions by more than 10% from the previous year.
It has, however, tweaked its incentive to get brokers to work with wealthier clients. It is raising the minimum household account asset size to $100,000 from $65,000 for brokers to be able to collect their 50% post-hurdle payouts. Sales to customers with accounts under $100,000 will be credited with the 20% payout.
In another decision irking some brokers, Wells Fargo is eliminating payouts on retirement plan accounts that they maintain for themselves and their immediate families. The firm told some brokers the change complies with an Internal Revenue Service code and that rival firms also have eliminated such payouts or plan to do so.
“I discount all my family accounts to the tune of some $3 million, and if the firm won’t compensate me I’ll move them to Schwab or another firm where they are less expensive,” said a veteran broker who spoke on condition of anonymity. “I told my branch manager that if I can’t do that, I’ll leave.”
A Wells spokeswoman did not immediately respond to a request for comment on the new retirement account policy.
Brokerage executives had toyed with making another key change in compensation but dropped it after vociferous kickback, said four brokers and managers in separate locations. The company had planned to deduct as much as 20% of managed account revenue credited to calculating a broker’s payout in order to cover administrative and other costs, they said.
Wells’ decision to remove banking from its broker bonus calculations has not spread to its rivals. Merrill Lynch will penalize brokers who do not make at least two referrals in 2017 to colleagues within Bank of America by shaving 1% from their payout percentage, up from a one-referral quota this year.
Morgan Stanley has retained its “lending balance growth” award, which gives brokers between .35% and .50% of the portfolio-backed, margin, mortgage, credit card and other loans and lines taken out by clients if loan balances grow by at least $500,000 in 2017 over 2016. As a further lagniappe, the firm will give its brokers $1,000 to $10,000 to divvy up among sales associates and other staffers who help generate the loans.
Morgan Stanley is sticking by such incentives in spite of a charge from Massachusetts securities regulators that it ran illegal sales contests in the state and in Rhode Island to encourage loan sales. Morgan Stanley has denied the charges.