The 20 Rising Stars of Wealth Management - 2007 - (Page 9) CHANGING COMP Larger firms and wirehouses have been modifying compensation structures to adapt to the growing and changing wealthy population and to encourage some brokers to aim for the larger, familystyle accounts that are key to a wealth management business. Andy Tasnady, consultant and managing partner at Tasnady & Associates, noted that firms are now willing to pay for growth with greater rewards for brokers who land more clients. Some have revamped their compensation plans to reward larger accounts and revenue generated from new clients, Tasnady said. According to Tasnady, major players including Merrill Lynch have started offering bonuses for new client revenues, putting the emphasis on bringing in new money to the firm. Bonuses and pay structures still reward brokers who bring in high revenues from any type of client. Tasnady, who works with brokerage firms on the design of their compensation plans, also noted that some large firms give smaller or non-existent payouts for clients whose assets fall below certain levels. In some major firms, compensation is reduced for accounts less than $100,000. While this is not the bread and butter of a wealth manager, many advisors that manage the high net worth also have slightly smaller accounts as well. This compensation change affects what they earn from these accounts, Tasnady noted. Credit Suisse Private Bank changed its compensation structure July 1 to a plan that most heavily rewards bankers who bring in more that $4 million in annual production and adversely affects those with less than $750,000 in production. KEEPING TALENT Major firms have been leaning more and more towards delayed compensation plans for big-ticket incoming recruits with the intention of keeping them tethered to the firm for longer periods of time. “A few years ago, brokers were hired on 4-6 year delayed compensation plans,” said a broker at Wachovia Securities. “Now we’re seeing 6-8 year payout plans, sometimes even longer.” Everyone wants to nab and keep the top producers, and firms now are trying harder to make sure those earners stay put. According to Tasnady, wealth management professional are very aware of compensation rates in their field compared with those in other sectors of the financial industry. GOING INDEPENDENT? Yet once an advisor attains a pinnacle practice—managing a few AUGUST 2007 clients with enormous account sizes and a full range of wealth management services—what is the draw to staying on board with a large firm rather than forming an independent practice and keeping a higher percentage of the revenue? Aside from a fear of initial overhead costs and a lack of entrepreneurial spirit, not much, it appears. Last year saw a rise in the number of brokers and wealth managers leaving firms to start their own practices. During the period of November 2005 to November 2006, Wachovia Securities saw 70% of its broker headcount rise within Wachovia Securities Financial Network, the independent brokerage arm formed in 2000, according to a spokesman. He noted the unit is the smallest yet fastest growing segment of Wachovia. Open architecture and access to advanced technology have made it easier for individuals to open up their own shops, provided they have a loyal, well-established client base along with capital to meet compliance demands and other overheard costs. Factors that keep successful wealth managers at larger firms include a diverse and high quality array of products to sell, a satisfactory compensation structure and a sense that the advisor’s relationship with the client is recognized for its true monetary value. Wachovia has been defining itself as the leading firm recognizing that the broker owns the client relationship, not the firm, and has been developing and growing Wachovia Securities Financial Network, the independent arm of the bank. WSFN is available to both wealth managers and brokers—but many who choose to go independent can do so because they manage large accounts. The alternative compensation structure offered in the financial network gives advisors the option to choose a less traditional business style and be their own boss—one of the many ways larger firms are trying to attract the best of breed. Other ways firms keep and attract top talent include offering onboarding programs and continuing education programs. Onboarding, the practice of devoting extra time, care and attention to new employees to bring them up to speed quickly, create loyalty and reduce turnover, is a recent corporate trend originally pioneered by glassware company Corning. Diamond Consultants, a recruiting firm, is modeling its initiative after this program with a plan to focus on upper-level executives and top producing financial advisors in major firms. WEALTH MANAGEMENT RISING STARS 9
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