"This is an integration nightmare," said a legacy Wachovia broker in the Midwest. "People thought 4Front was bad, but that was nothing compared to this."
4Front is the bonus opportunity scrutinized by advisors when it was offered in lieu of a retention package.
This advisor, who produces more than $1 million annually, said he doesn't expect Wells Fargo to revamp its whole payroll system on account of brokers grumbling.
"Unfortunately, the tail doesn't wag the dog," he said.
Michael Meissner, a tax lawyer and partner at Squire, Sanders & Dempsey L.L.P., explained that businesses use this "supplemental withholding rate," the flat 25%, for irregular compensation, such as payment from stock options or bonuses.
"Sometimes a company will use this rate [for irregular compensation] because it's mechanically easier to use a flat 25% rate and not force payroll people to recalculate" everything, he said.
Financial advisors' pay falls in to the irregular compensation category because it varies month to month based on their production.
Under Wells Fargo's new system, advisors are paid a bi-weekly "draw," and their commission checks will be processed monthly.
The draw, which is used throughout the industry, is a guaranteed weekly salary that is paid in addition to, or more often against, brokers' commissions. The draw system is used by brokerages to avoid being forced to pay advisors overtime wages.
As a result of multiple class-action lawsuits where brokers at major firms demanded overtime pay under wage and hour laws, the Department of Labor's Wage and Hour Division concluded in November 2006 that financial advisors are exempt from receiving overtime pay as long as they are paid a $445 guaranteed weekly salary minimum. Hence, the draw.