2023 is shaping up to be a relatively quiet year for compensation changes around the largest broker-dealers, with a few exceptions among some of the regional-national firms.
One long-term trend that seems certain is that financial advisors across firms, over time, will keep being asked to run leaner and steeper to get the same amount of cheese.
"It's never up. It's not like they're going to pay more," Michael Terrana, the president and CEO of recruiting firm Terrana Group, said in an interview of the larger bank-owned brokerage firms. "They figure out a way to move the goalposts, to get the same as you did the previous year."
Typically, advisors at the wirehouses — and, to a lesser extent, J.P. Morgan and Citi — bring
When compensation changes, even if the overall total package remains the same, in practice the advisor has to perform more labor, Terrana said. For example, they might have to clear a certain "hurdle" in order to get the same tier of pay.
"Or they take some of the comp that's paid on a cash basis, and they make it deferred. And they may even add a point or two to the deferred. But maybe it could vest in three or five or seven years," he said.
In practice, this means the same pot of money is still there, but only if the advisor submits to thicker golden handcuffs to get it.
"All firms are different, but that seems to be the trend. And it's more the wires, the big owned-bank firms where the complaints come from, from the advisors that we hear," Terrana said.
Too much tweaking of compensation plans could backfire for firms as the recruiting market appears to still be red hot this spring, several industry recruiters told Financial Planning.
The firms featured here, evidently acknowledging that, overall did not make too many tweaks to their compensation plans in 2023.
"It's not the quietest year, but average to just below average, in terms of changes," compensation consultant Andy Tasnady said in an interview. "Overall, from basic comp, there aren't a lot of changes year to year."
In Financial Planning's annual analysis of base pay for individual advisors, conducted by Tasnady and his firm,
The breakdown of advisor pay includes the following different production levels:
Best advisor pay for the $2M producer in 2023 Best advisor pay for the $1M producer in 2023 Best advisor pay for the $600K producer in 2023 Best advisor pay for the $400K producer in 2023
*All data is provided by the companies featured and compiled by Arizent, with analysis by Tasnady & Associates. Data from Edward Jones is average data and individual financial advisor experience there may vary.
The analysis does not include pay for teams, although that structure is becoming more common, with employers encouraging it as a way to boost production and help with succession, among other reasons. Even Edward Jones announced recently that it would
Merrill's changes should be taken into context, Tasnady said, noting that in some recent years it had not made many comp grid adjustments. With that said, "for Merrill Lynch, across the board, they made the most changes to their basic compensation ... they lowered the basic payout between (about) half of a percent to a one and a half percent of sales, on average, across those three — low, medium and high production levels" — the $600,000, $1 million and $2 million tiers.
On the other hand, Merrill also "got rid of an unpopular compensation policy," which is not factored into this basic compensation comparison as part of the recent changes, Tasnady said. "It will seem as if Merrill Lynch has reduced their compensation, but the net result for most people probably will be flat or flatter impact."
In the industry, generally an annual sales production of $400,000 or $600,000 is considered on the low end for a wirehouse broker these days, Tasnady said. One million dollars is considered average at the bigger firms. "Two million (dollars) is well above average." In the past, $200,000 was considered low.
RBC Wealth Management, Janney Montgomery Scott and Raymond James & Associates also had grid stretches over last year that penalized low performers at certain pay levels.
At RBC, producers below the million dollar threshold saw significant grid stretches, Tasnady said. For example, a producer with $400,000 in production last year now has to hit $440,000 this year to avoid being paid less than last year.
At Janney, the firm "dropped the $400,000 person from a 32% payout down to a 25% payout," Tasnady said. "So it's a minus $28,000 impact if you stay at $400,000. And that's a big drop."
At Raymond James, the firm made it a bit harder to qualify for a certain form of compensation known as the club level awards — "a little bit more conservative with what club level they think you'll reach at a million dollars," he said. This caused the firm to fall considerably in its million-dollar producer pay ranking, among the regional firms featured this year.
"Most firms have, it's almost like what they call a penalty box rate. It's a level below which, they're basically saying, it doesn't make sense for you to stay unless you can get above this minimum range," Tasnady said.
"UBS and Janney, when you look at the $400,000 level, they're way below the payouts of the other firms. They're probably the two that are the most aggressive about the $400,000 level to say, 'you need to step it up.'"
The only place in FP's rankings that offered more in basic compensation was regional firm Stifel in the $2 million range.
"They added 1% of deferred. They went from 5% to 6%. So that adds $20,000 of deferred for a $2 million person," Tasnady said.
Stifel has signaled loudly that it wants to hire more top performers, including on its recent
"The types of changes that they are making are consistent in the longer-term trend of all the firms, which is they tend to continue to stretch the amount that people need to perform in order to get the same payout," Tasnady said, echoing Terrana.
This has come as the average advisor has gotten more productive at those firms, he said.
"As typical advisors have gone from 800 accounts to 200, they've actually increased the amounts of assets under management because they have more larger accounts."
Additionally, over the long term, the market has generally gone up — and with it, client accounts ballooned, more or less effortlessly elevating the advisors' pay as well — since pay is tied to their clients' assets under management.
This came "in conjunction with the shift from transactions to asset based pricing," he said of the industry's business model shift over the years. "If you have twice as many assets, you'll have twice the assets under management revenue, even without having new clients or more clients."
To stay competitive, firms are telling advisors they have to grow their business actively, too, or get lost. But it's become more of a fine-tuned message over the years, in Tasnady's experience.
"Firms have been getting a lot more customized. When they do make design changes, they tend to do it on the behavior-specific penalties and bonuses," he said. "And they tend to make fewer changes in the grid from year to year."
"That's an ongoing trend that's probably not going to change," advisor recruiter Mark Elzweig said of the moving goalposts for compensation in an interview. He noted that as major firms spend millions of dollars on technology and compliance, it "certainly costs a lot."
Firms have to keep up with client demands for a better user experience, as well as cybersecurity risks and ever-changing regulations, he said. This has also likely had consequences for what they demand of advisors to be worth their salt at those firms — meaning the firm will give them more tools and bigger accounts, but also expect more return on that investment, to justify that big compensation expense line item to analysts.
"It's not really a numbers game like it was in the past, where they were interested just in hiring anyone who's semi-reasonable. Now they're investing a lot of money and resources in their advisors," Elzweig said. "And they want to make sure that they can really get a good return, basically."
Tasnady said the advice he always gives advisors is to recognize that growth is rewarded above all else, in their career at all firms, and to run in that direction when picking employers rather than checking out who pays a few thousand more here or there for their current level of production. This means looking for places with strong resources supporting growth.
"If you want to make the most money, it's not going from one firm to the other. It's growing your business from $1 million to $2 million," Tasnady said. "If you go from $1 million to $2 million, you'll make 100% more money, if not more, as you get accelerated payouts."
