That is the message major wealth industry firms delivered to their advisor forces with their compensation plans this year. As the economy improves, firms are going off the grid to reward advisors who are capturing growth and reaching new highs in their practices.
This change marks a turning point for the wealth industry. As firms have struggled with market and investor uncertainty since 2009, profitability targets have been elusive, according to Alois Pirker, research director at the Boston-based financial services research and consulting firm Aite Group. This year, as the economic outlook improves, grid payouts show stability and new incentives are being added to induce advisors to strive for more growth.
"Firms realize that now is a good time to push and to incentivize for growth," Pirker says. "[They're saying], 'Let's make sure we switch that gear again from defense to offense and start having an eye to growth much more than we had before.'"
That new push has manifested itself in a number of creative ways, including behavior-based bonuses. For large firms, that means incentives to expand work with clients, including a new emphasis on financial planning at UBS or tying in banking transactions at Merrill Lynch.
"The best firms align their rewards with the actual behaviors they're trying to promote, and they don't just do it with compensation," says Andy Tasnady, managing partner of Tasnady & Associates, who compiled the data for our ranking for this issue. Firms are also using training, management reviews and feedback, and technology tools to steer advisors in the right direction.
Large Firms, Big Incentives
As the four wirehouses unveiled their compensation plans for 2013, the changes all seemed to have one thing in common: behavior-based incentives for their advisors to attract new assets.
"They're definitely taking cues" from one another, Tasnady says of the wirehouse firms: Bank of America Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo. "They have similar elements around growth—either growth in assets, growth in certain types of accounts, [or] growth in total sales."
On Wall Street's ranking for 2013 once again places UBS at the top of the list for the hypothetical models for the first two production levels—$1 million and $600,000. Those results, according to Tasnady, are due in part to the firm's Growth Plus award, which provides advisors with a sum based on their production amount for each year.
"It's not really referred to in these change documents or the core plan," Tasnady says of UBS' Growth Plus award. "It has an eight-year life to it, so that's a positive."
Staying competitive at production levels above $1 million was an emphasis for UBS when it last changed its grid in 2009, says Jason Chandler, head of the firm's Wealth Management Advisory Group. This year's compensation plan at UBS, outside of its core pay grid, emphasizes rewards for broader investment advice.
That includes an enhanced payout for financial planning fees. If an advisor charges more than $1,500 for a financial plan, he or she receives a 50% cash payout and another 15% toward an expense account to use toward his or her business. So far the incentive has worked, Chandler says, with financial planning fees in January of this year up dramatically from January 2012.
The firm's research shows that clients are more comfortable with the advice they receive when they are involved in a financial planning relationship, and this leads to higher satisfaction rates and increased assets. "We also learned from talking to clients that when they paid for the plan, they're much more invested in it," Chandler says.
