Broker compensation can be a slippery thing to nail down, with different firms using an ever-changing assortment of methods and incentives to compensate brokers for their work.
That’s why Financial Planning publishes an annual list of average base pay figures for some of the biggest names in the industry. Whether an industry newcomer is looking for their first job or a seasoned broker is considering a switch, having the latest figures on broker pay can play a significant role in determining where they want to end up.
With that in mind, Financial Planning looked back at the last five years of broker compensation figures to see how base pay is changing in the industry. Here’s what was found.
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Edward Jones’ reliance on deferred bonuses may give pause to some brokers. Some firms have nearly decade-long vesting periods for their deferred compensation, which can increase the possibility that a broker loses some portion of their deferred pay upon leaving the firm.
Kelly Milligan, a Danville, California-based broker who was at Merrill for 21 years, lost more than half a million dollars in deferred compensation after leaving to help found Quorum Private Wealth. Last month, Milligan lost a lawsuit against Merrill that sought to recover the funds.
The industry has been trending towards shorter vesting periods, but timelines for deferred comp have bottomed out, according to Phil Waxelbaum, the founder of recruiting firm Masada Consulting.
“Once you breach three years, you start to mimic ERISA-qualified deferred comp plans. No one will take on that exposure given the ongoing litigation,” Waxelbaum said. “There needs to be a clear and intentional line of demarcation between IRS-qualified incentive plans and ERISA benefit plans.”
Edward Jones, which specifies that its bonuses are not deferred comp, has a more generous schedule than the rest of the industry. Edward Jones brokers receive bonuses on a trimester basis, with payments made two months after the bonus period has closed. That payment schedule should reduce the possibility for brokers to miss out on large portions of deferred compensation due to protracted vesting periods.
Still, experts say that Edward Jones isn’t a top choice for some brokers for reasons beyond base compensation.
The firm’s unique structure offers better pay than many of its competitors, but brokers can also miss out on additional incentives and benefits that other firms offer, according to Andrew Tasnady, a compensation consultant and the founder of Tasnady & Associates, who conducts the analysis for Financial Planning’s broker compensation list.
Wirehouses, while providing less pay as a share of production, can offer more room for growth through things like advisory teams and books of business inherited from other brokers, Tasnady said.
Waxelbaum pointed to similar differences between Edward Jones and the rest of the industry.
“Few meaningful advisors have been attracted to one-person outposts in retail storefronts, particularly as employees,” Waxelbaum said. “[Edward Jones’] platform is still narrow, so lifers tend to top out. Marginally higher payouts retain [advisors], but they can’t overwhelm more complete platforms with strong support to grow. The ability to service HNW [high net-worth] clients is still a glaring weakness.”
Beyond individual firms, there are a couple of key factors that consistently affect broker compensation.
Among brokers for whom base pay is a top priority, wirehouses are no doubt a tough sell. But, as experts are apt to point out, compensation isn’t everything.
Brokers making the leap from one firm to another often cite compensation changes as a reason for their departures, Louis Diamond, the president of the recruiting firm Diamond Consultants, told Financial Planning last April. But pay alone is rarely enough to push someone to leave a firm.
Compensation changes, Diamond said, are more often the “straw that broke the camel’s back” — a final insult in a longer list of grievances that push a broker to jump ship from their current firm.
