Banks banding together to fight excessive broker pay
If you’re a financial adviser with a proven book of business, you’ve been in the catbird seat for the last few years. Banks and brokerage houses have been fighting over talent aggressively, offering six- and even seven-figure signing bonuses to pry advisers away from their current employer. At the same time, firms have paying out large year-end bonuses to try and keep competitors at bay. It’s been the perfect storm, but it may soon be over.
The four banks with the biggest brokerage units in the U.S. – Morgan Stanley, UBS, Wells Fargo and Merrill Lynch – appear to be banding together to put an end to the poaching war, which results in little more than a costly game of musical chairs.
The banks, speaking on and off the record to the Financial Times, said that pay for advisers is going to be reined in. While banks are relying more on their wealth management units to fill out their balance sheets, remuneration costs are no longer sustainable, they said.
“The hand on the comp accelerator is likely to be less rather than more,” Bob McCann, head of UBS Americas, told the FT.
Some banks have already made moves to cut costs. On April 1, Morgan Stanley began cutting compensation for brokers who sit back and cash in from the issuance of new stocks and bonds that the firm underwrites, pushing them to get out and sell new financial planning services instead. Shares of new IPOs like Twitter and Facebook sell themselves, goes the theory. Some Morgan Stanley brokers have seen their compensation cut in half since the move.
Another factor that’s likely to save banks is an incoming regulation that will require advisers to disclose their signing bonuses to clients. With the rule in place, advisers will be much more wary of jumping ship and losing clients.
It will be interesting to see how it all plays out. At the end of the day, the best of the best still have all the leverage in the world to negotiate pay. Like in investment banking, it’s likely to be the middling employees who will walk away unhappy come payday.
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