Page 39 - Investment Advisor February/March 2023

BROKER-DEALER BEAT

By Jeff Berman

6 Wirehouse Comp Trends to Watch in 2023

Industry experts predict grid changes and a continued focus on team
compensation.

here were few significant
changes made to compensation
Tat the wirehouses in 2022, and
there likely won’t be many major chang-
es in 2023 either, according to advisor
compensation experts. Here are their
main conclusions about what lies ahead
this year.
1. There could be a return to grid
changes in 2023: “Since we haven’t
seen too many grid changes the last
few years, I would expect the firms to
consider increasing grid level thresh-
olds (i.e., moving up the requirement grids untouched says it all. The hyper- tinue,” Tasnady explained. “But that’s
to get a certain payout),” according to competitive recruiting environment a slow-moving boat. In the short run,
Louis Diamond, president of Diamond now includes other wirehouses, region- there’s probably less pressure on that
Consultants. “The rationalization would als and turnkey independent platforms now because, with the stock market
be inflation and increased costs to oper- who offer attractive deals and monetiza- down, many advisors and firms are like-
ate the business since the costs of pro- tion opportunities.” ly seeing a slight reduction in their comp
fessionals across the board have risen.” “There’s simply too much competition expense percentage because advisors’
Merrill Lynch “altering its growth for wirehouses to continue to monkey revenues are going down that are largely
grid … has been wildly unpopular since with grid breakpoints every year,” fee-based.”
advisors feel as if they are being pushed Elzweig explained. “Going forward 2. Firms will keep focused on grow-
to bring in a certain number of house- the emphasis will be on incentivizing ing fee-based business: Both Elzweig
holds even if this is contra to their busi- advisors to grow their AUM but not on and Tasnady predicted the large firms
ness model (i.e., advisors who focus on chopping payouts.” will continue to encourage and incen-
the UHNW and don’t focus on volume of Compensation consultant Andy tivize growth in fee-based business ver-
households or those who grow based on Tasnady, managing partner of Tasnady sus transaction-based business. “That’s
acquiring additional assets from existing Associates, pointed to the fact that “grid part of the change for Merrill 2023,”
households),” Diamond said. His predic- creep” happens because, “as advisors Tasnady noted. “A couple of the other
tion is that Merrill “will make it so advi- get more productive, there’s a compen- wirehouses didn’t make any changes or
sors just need to grow their business by sation cost effect to companies.” Firms’ just minor tweaks. And that’s typically
a certain compound annual growth rate compensation as a percentage of rev- what happens in any given one year.
(CAGR) or grow it by an amount of AUM enue rises year to year as an advisor’s These compensation plans are typically
rather than by a number of households.” average revenues go up, and the effect evolutionary, not revolutionary in their
However, executive search con- adds up over several years, he noted: type of direction.
sultant Mark Elzweig, president of “So that’s why firms sometimes put in “One trend that I see might be forming
Mark Elzweig Co., believes: “Going grid adjustments, called grid stretches, is to increase the differential between
forward, firms will leave grid break- as a partial way to slow down this cost what advisors earn on fee-based revenue
points untouched. The bottom has been increase effect, where to get the same and relationships versus transaction-
Adobe Stock said. The decisions by Morgan Stanley, a little bit more in sales that next year.” many top firms have encouraged their
based,” Tasnady said. “For 15–20 years,
percent payout rate, an advisor has to do
reached in advisor grid breakpoints,” he
UBS and Wells Fargo “to leave their
advisors to move clients into advisory,
“That’s a long-term trend that’ll con-
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