Ameriprise has shifted compensation grid thresholds for some lower producing advisors in its employee channel, according to documents viewed by On Wall Street.
The changes reflect similar measures taken by Merrill Lynch, and may have a bigger impact on Ameriprise's roughly 2,000 advisors should market volatility persist this year.
"This is going to be tough in a down market," says Andy Tasnady, head of a compensation consulting firm.
Thresholds have been adjusted so that in the 2016 plan, for example, an advisor would pass from a $350,000 hurdle to a $400,000 hurdle, compared to the 2015 plan where the same advisor would pass from $385,000 to $435,000.
The net effect could be a lower payout for some advisors. For example, under Ameriprise's 2015 plan, an advisor generating $400,000 in annual production could have earned a total 45% payout, including cash, deferred comp and a planning bonus. Under the new plan, that same $400,000 producer would likely get a payout of 43%.
At the bottom of the spectrum, an advisor generating $225,000 in revenue could have earned a total payout of 35% in 2015. Under the new plan, that same advisor would earn a total payout of 33%.
These figures do not include other potential bonuses, penalties and other policies such as length of service that could affect payouts.
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A company spokesman was unable to respond to requests for comment.
According to the firm's fourth quarter earnings report, total net revenue per advisor was $514,000. That figure includes both employee and independent advisors.
If market volatility persists and therefore negatively impacts advisors' businesses, that could even send some advisors backwards in terms of grid thresholds, says Tasnady. He notes that advisors who have been moving to fee-based may see asset levels shrink.
"In a year of relatively little changes, this strikes me as the biggest one," Tasnady says of Ameriprise's changes. "The timing is tough because it looks like they are heading into a down year. So the pain for advisors may be even greater."
In fact, some of the major brokerage firms – wirehouse and IBDs – have recently reported that their client assets dropped at the end of the fourth quarter due to market volatility. Ameriprise said that client assets increased only 1% for the fourth quarter.
Rob Blevins, president of recruiting firm Rowlette Executive Search, says the compensation changes also reflect the continuing emphasis firms place on advisors growing their books of business.
"When you look at Ameriprise and firms like it – they are built for growth. They want you to be growing account values as well as the headcount of your book. If you are that advisor, you'll probably be okay. But if you are doing $400,000 and are going to stay at that level, then I might suggest you look at the independent channel," Blevins says.
CHANGES AT RIVAL FIRMS
Merrill's plan also represented significant changes, particularly for lower producing advisors at the wirehouse. Core payouts remained the same under Merrill's 2016 plan, but grid thresholds were raised by $50,000 for producers below $1.5 million. In other words, some advisors might have to work harder in 2016 to achieve the same payout.
The average production of an advisor at Merrill Lynch was just under $1 million at the end of the fourth quarter, according to the company's earnings report. The wirehouse has more than 14,000 advisors.
Blevins predicts that regulatory changes such as the Department of Labor's forthcoming fiduciary rule, may add to firms' expenses – which in turn may add pressures to change comp plans.
"I think all the firms are going to see comp changes because of compliance and oversight – it's just become more expensive to be in the advice business," he says.