(Dow Jones) The compensation grids that brokerages use to pay their advisors have always been pretty simple. Now, they're getting some new flourishes.
Traditional payout grids give a broker a percentage of the fees and commissions they generate from clients, known as their production. The higher the production, the higher the percentage. While these basic grids remain, many major brokerages are tacking on added bonus opportunities in a push to get advisors to move away from traditional stock and bond commissions to fee-based and other, more profitable types of business.
UBS Wealth Management Americas announced its 2011 compensation plan last week. Levels on the basic grid stayed the same, as did the extra 3% of production earned on fee-based, or wrap, accounts.
But the firm eliminated the extra 3% of production advisors are pocketing this year on insurance and annuities. In place of that, USB is offering an additional 0.5% to 2% of fees and commissions earned from selling insurance, mutual funds, annuities, alternative investments, mortgages and other loans, managed accounts and for creating individual financial plans for clients. The percentage depends on the product or service.
The new arrangement shows a trend toward encouragement of broader services and production growth, as opposed to punishment for underproducing.
"All the extra perks for business outside the traditional brokerage areas show that UBS doesn't have to use a stick anymore," said Scott Smith, a brokerage analyst with Cerulli Associates. "They've already seen the attrition of the advisors they wanted to leave, so now they are changing to carrot mode."
Bank of America Corp.'s (BAC) Merrill Lynch, Morgan Stanley Smith Barney and Wells Fargo Advisors haven't revealed 2011 plans to their advisors yet. But they are all moving in the same direction, analysts say.
Smith says they're trying to do that without making the grids too complicated and upsetting advisors.
"It's risky to change anything very much in this business," Smith says. "The firms have to balance complicating the grid with rewarding the behaviors they want."
UBS' new 0.5% to 2% Wealth Management Award, first reported last week by Reuters, also replaces an existing arrangement that awarded advisors for boosting their recurring revenue. That program gave them an extra 1% of their recurring revenue, such as fee-based business, if three-fourths of their total production was in recurring revenue and another 1% of that business had increased by 25% over the previous year.
Under the new plan, the recurring revenue targets are no longer required for advisors to get a bonus. UBS says these changes will allow more than 90% of advisors to get an award, compared with about one-third this year.
Bob Mulholland, head of the Wealth Management Americas advisor group, said the new plan "creates opportunities for our advisors to continue growing and delivering for their clients, while at the same time, respecting the very hard work they've already invested in building their businesses."
UBS is also expanding its Net New Asset Award program to allow certain retirement plan assets, like outside 401(k) accounts and restricted stock, to count toward the bonus.
"The extra perks are great for those of us who are already doing financial plans and fee-based business with our clients," says one UBS advisor in the Northwest. "But I don't think 50 or even 200 basis points is going to be enough to motivate more advisors to do that kind of work."
Fee-based business is more time-consuming to build than just doing commission business, this advisor says. Those who do it are working not so much for bonuses but for "the more predictable revenue and the stronger client relationships."
Several advisors say they expected to see more cuts for lower producers and stricter penalty boxes in the new UBS payout grid. Instead, the only push in that direction is the increase of the minimum account size to $75,000 per household from $50,000, to get paid for opening new accounts. And beginning in April, UBS will charge advisors if they give clients discounts below a certain price floor.
"It's clearly indicating that UBS advisors have too many small clients in their book which are not producing enough revenue," said Alois Pirker, a brokerage analyst at Aite Group. "UBS tries to improve its own income by incentivising its brokers to focus on the right clients."Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.