With record profits being churned out in the securities industry, how can 2007 be anything but a good year for financial advisors? Well, not all brokers will get a bigger piece of the pie. Despite the fact that firms are rewarding their biggest producers, these companies are still trying to keep costs down.

And the pressure is on. Each firm is trying to grab the others' star brokers. But it's more than just a super salesperson or team that firms are buying. With each producer comes his or her wealthy clients and their assets--at least, that's what the firms are hoping.

So what are brokerage houses doing to lure the top talent? All you have to do is look behind the payout grids--which haven't changed very much--to the perks. These choice tidbits are the real drivers behind brokers' movements from firm to firm. Whether these extras are growth bonuses
or entail a company assuming some of the advisors' expenses, firms are getting more creative in order to be more competitive.

Other factors are also shaping pay scales. The continued push to fee-based business is one. But another is the effect of the overtime class-action lawsuits. Some have been settled, while other claims are still pending. Either way, says one recruiter, the litigation is "the big elephant in the room" to which the firms are quietly reacting.

Considered the leader in the retail-brokerage industry, Merrill Lynch recently instituted a bonus based on production growth. And it's no wonder: The firm's global wealth management unit saw its fourth-quarter net revenues for 2006 reach $3.3 billion, up 13% from the fourth quarter a year earlier. In addition, total client assets in the unit's accounts hit a record $1.6 trillion--an 11% rise. The division's subgroup, global private client, saw its net revenues increase 10% to $3.1 billion in 2006. Fee-based revenues reached a new record: $5.8 billion. The overall global wealth management division saw total net new money for the full year hit $61 billion.

"Everybody wants net new assets," says Danny Sarch, president of White Plains, N.Y.-based recruiter Leitner Sarch Consultants. He adds that both managers and advisors at Merrill are being rewarded for bringing in new money--not just merely increasing the assets of existing clients. "Merrill is always on the cutting edge in driving broker behavior."

Merrill's new "Focus on Growth" program adds an award payout based on production growth, making it possible for each of its approximately 15,700 advisors to reap awards of up to 30% on incremental production from prior years. Coupled with an average incentive compensation rate of 40%, an advisor at Merrill could conceivably hit a 70% payout.

The firm is also rewarding brokers who specialize in fee-based business--concurrent with the industry's march toward this line of work. For example, annuitized payouts went up for those producing $1.75 million annually by anywhere from one to three percentage points over last year.

UBS has also built a growth-bonus feature into its compensation for managers and advisors alike, according to Ron Safir, chief administrative officer for UBS wealth management, Americas. "We're the only firm that compensates additionally on a cash basis for bringing in net new money," says Safir. "What we're trying to do is grow our business--and net new assets are a key indicator of that growth."

Safir takes issue with the position of his firm on the comparative pay chart (click here to view a PDF file of the "Best Pay" section), saying that the assumptions don't fit the UBS model. "The range [for UBS] is from 43% to 58%, depending on the products," he says. For instance, UBS pays a much higher rate on wrap fees, insurance and annuity business. "If you look at our grid," Safir notes, "we pay the basic rate plus four points for wrap fees." So if 100% of an advisor's business is in wrap fees, he would get paid out at 47% if he brought in the maximum for net new assets, Safir explains.

UBS has given its advisors flexibility and "put certain incentives in to continue the type of business they were in," Safir says. This year, the firm has increased the payout for its $2 million-plus producers, as well as provided an increase for advisors using wrap-fee accounts at that level.

And advisors should expect more changes soon in the UBS pay grid. "We are looking at things now that we'll be reviewing in a number of months," Safir says.

But the real story among the wirehouses belongs to Smith Barney, which drifted downward on this year's comparative pay chart for $1 million, $600,000 and $400,000 producers. Citigroup's retail brokerage arm revamped its pay policy to reflect its $98 million settlement of the infamous broker-overtime class-action lawsuits. Other firms have settled as well. UBS agreed to pay $89 million to advisors across the country, while Morgan Stanley settled with 5,000 California brokers for $42.5 million. Merrill settled at least one lawsuit, agreeing to pay $39 million to certain California brokers.