There isn't too much data available about how banks pay reps, in part because banks don't hire as aggressively as wirehouses and see little need to advertise their secrets. In addition, the bank brokerage universe is so broad that each institution seems to have its own pay concoction; there's just no standard
Therefore, to get a better grip on what banks pay, Bank Investment Consultant polled 318 of its readers on a variety of factors. While the results of the survey vary widely, certain clusters of data suggest some consensus about how bank-based advisors are motivated and rewarded for their hard work.
Among the highlights we found: Respondents produce an average of $400,615, earning many of them the highest payout on their grids; most advisors who responded kept afloat last year through a combination of fee-based business and fixed-income sales; and many are ambivalent at best about their banks' efforts to incentivize cross-sell. But that's just the tip of the iceberg.
COMMISSIONS VS. SALARY
How frequently is a bank-based advisor's pay based on the pure, wirehouse-style eat-what-you-kill, commission-only model? About half (47%) of the responding bank reps earn commissions only on what they sell, and 39% earn a salary plus commission. Which is better? It depends whom you ask.
(Survey results: Commissions vs. Salary)
"I think salary plus commission is a great model," says Howard Diamond, chief operating officer at Diamond Consultants, a recruiting firm in Chester, N.J. "For lower producers, it gives a level of comfort that they're at least going to get something. And if it's structured right, it keeps advisors hungry; they're just not so worried all the time about their next paycheck."
Andrew Tasnady, managing partner and compensation consultant at Tasnady Associates, in Port Washington, N.Y., says that a salary-plus-bonus structure can work in a bank's favor too. "Salary locks in an expense level, which hurts in a market downturn, but can help when the market goes up by lowering costs overall," because partially salaried reps make less in commissions, which rise in hot markets. However, "most advisors, if they're good, prefer being commission-based, so they can benefit from the upside," he says.
Smaller banks are less likely to be commission only, Tasnady notes. "With fewer people to manage it's just easier to use a straightforward salary structure. Large banks tend to be more commission-based.
Nine percent of advisors in our survey said they earn a combination of commission plus some sort of cross-sell bonus, and of those, 38% of respondents said while that bonus is a nice bump in pay, it's nothing major, and 26% said it makes no difference to their financial well-being. "I'm not surprised advisors don't see it as an important part of income," says Paul Werlin, president of Human Capital Resources, a recruiter in St. Petersburg, Fla. "At most banks where I've seen it, it's not a financial reward, but it instills a sales culture across silos."
Do cross-sell bonuses even work? Only 6% of advisors report an increase in referrals from their cross-sell partners and 4% say their bank's cross-sell initiative has eaten into their production because they have to share revenue with the referrer.
However, 16% say cross-sell bonuses make a significant difference to their income, and that's a sign that some banks are taking their cross-sell strategy seriously. "The numbers highlight that a well-structured plan can work," says Wayne Cutler, a partner at Novantas, a consulting firm in New York City. "Obviously, effectiveness is limited when compensation isn't that attractive."
Not all advisors are happy about being encouraged, by carrot or by stick, to cross-sell-12% say cross-sell pressure takes valuable time away from providing planning advice and 2% say they're worse off for it in terms of income. Problems can arise because "they're often over-designed," Tasnady says. "If a bank is client focused, they're already being moved to where they're best served. Additional compensation merely reinforces this behavior; it doesn't change behavior. There's only so much you can expect from comp design."
Almost three-fourths (71%) of all bank reps responding to our survey said they are compensated based on monthly performance; 12% are paid on quarterly performance; 14% on annual performance; and 4% on a trailing 12-month basis. Diamond prefers a quarterly system because it's frequent enough for banks to keep on top of rep performance, but not so frequent that reps are always rushing to make their numbers. "Compensating people on quarterly performance rather than annual is a far more sustainable and tangible way of perpetuating production," he says. "Monthly is too often."
(Survey results: Payout grid levels)
Payout grids were confirmed as ranging from 20% at the low-end to 45% for big producers. Many banks' grids top out at 35%, though, which Rick Rummage, managing partner at the Rummage Group, a recruiting firm in Reston, Va., says isn't enough-advisors should expect better than 35%, and banks should pay it if they want results. "Don't cap a guy out at 35%! Dangle the carrot!" he says. "Take it all the way up to 55% or 60% if you want to see revenue! A good incentive plan makes someone want to get to the next level. I think banks pay too much for low production and not enough for high production."
Tasnady is more circumspect-after all, many bank-based advisors have access to warm referrals. "Thirty-five percent isn't necessarily too low," he says. "Bank brokerage payouts are traditionally 5% to 10% lower than at traditional brokerages," which expect their advisors to find their own prospects. Wirehouse payouts usually top out at 45% or 50%.
The majority of survey respondents reported that hitting the highest payout level is difficult: One-third said only 5% of their team made the grade in 2009, and 24% said no one hit the highest payout at their bank. However, 27% said more than 20% of their team hit the high end of their grids. Diamond thinks this is about right. "It shouldn't be too hard to hit the highest level; if it is, it's counterproductive," he says. "If someone you're trying to motivate can't reach the brass ring, why have a brass ring?"
Exactly what advisors have to produce to get the highest payout seems to vary wildly from bank to bank-$75,000 to $500,000-but most of our respondents reported that $150,000 to $200,000 in annual production put them at the top of their payout grids. "$200,000 seems about right," especially for banks outside big cities, Diamond says. But the range in payout grids just highlights one problem of comparing bank comp plans. Banks come in all shapes and sizes, as do their standards for reps. "Bank branches are like little territories in a set area, whereas wirehouse reps can sell to anyone, anywhere," Diamond says. "So if a bank branch is $50 million in deposits, $150,000 might be a good level for the highest payout to kick in. At a $500 million branch in Manhattan, though, $150,000 sounds too low."
Our respondents' production varied even more wildly than the threshold to earn top grid figures. Of 252 valid entries, 10 reps broke the $1 million barrier and one tipped $3 million in production. On average, though, these advisors produced $400,615. "That's great considering the market turmoil in 2009!" Diamond says. An average production of $400,615, would indicate that many survey respondents, if not everyone in their team, hit the highest payouts last year, based on their reported upper limits of their grids.
An equivalent number of advisors (34%) reported performing better in 2009 than 2008 as reported doing worse (37%). While 18% of advisors earned about the same in both years, 11% say they earned much less last year, and the lowest man on the totem pole produced just $50,000. "The wealth management business is struggling right now," says Novantas' Cutler. "The market got a decent bump in 2009, but not across the board. Some advisors were aggressive, but others sold everything and moved into CDs, missing the run-up. Advisors who were able to calm their clients did well, and those who panicked and cashed out probably lost business."
The vast majority of advisors (91%) said their banks did nothing to help them last year, and one advisor says that his bank actually made things worse by lowering his payout. One rep's pithy comment on his bank's efforts to help was: "It didn't fire me."
Werlin had little sympathy. "If they're treated so horribly, why is it so few want to leave?" he asks. "Banks are struggling with their own business, and it's been more important to them to grow deposits than to send referrals to fee income areas. When the Titanic was sinking, there weren't too many people polishing the brass."
The remaining 9% of respondents said they did receive help from their banks, ranging from a sign-on bonus to new products, an increase in base salary and other pay adjustments, aggressive marketing and referral programs, and rate specials on annuities.
How did fee-based advisors stack up versus commission collectors? More than one-fourth (27%) of advisors said that more than 30% of their business is in fees, followed by 19% of advisors who had 20% of their business in fees and 29%, which had 10% in fees. (One-fourth of advisors in our survey are commission only.)
"Fee business is always better than commissions," says Diamond. "You basically know your gross revenues in advance. With commissions, you never know what you'll make." Even though fee revenue dropped with the market, fee-heavy advisors were happy for the recurring income they'd built up: "Fee based was lower, but not nearly so much as commissions," one respondent reported.
Predictably, other products picked up the slack as investors remained wary of the market. Forty-two percent of advisors reported selling more annuities, while about 18% said they sold more mutual funds and exchange-traded funds, which market data would suggest were invested mostly in bonds and fixed-income options.
Cutler isn't surprised by the sharp rise in reported annuity sales: Annuity sales fluctuate "between fear and greed and right now customers want guarantees because they've been burned," he says. "It's dangerous because fixed-rate returns are so low that as inflation rises, they'll get squeezed. Annuities are great when they pay 6% or 7%, not when they pay 1% or 2%. But advisors love them because they're easy to sell and they have that beautiful tail of trail fees." Advisor commentary certainly backed this up.
There wasn't a lot of movement reported among respondents. Most advisors (53%) said the rep population in their territories stayed the same despite the recession, while for 13% it even grew. But one-third claim that there are fewer reps in their areas and 1% described the local population as "decimated."
Reps don't appear to be seeing a lot of new job opportunities, according to the survey. Roughly equal numbers of advisors report that calls from recruiters have remained the same (31%) or have increased (28%). On the flipside, 22% are getting fewer job offers and 19% say they don't get recruiter calls at all.
For those who do, 33% said that recruiters emphasized their bank's reputation in its community, 28% said that recruiters promised some kind of sign-on bonus, 25% said recruiters stressed advisor satisfaction at the hiring bank and 14% said recruiters talked about the acquiring bank's security in the age of failing banks. The recruiters are obviously saying what reps want to hear: 27% of respondents said a sign-on bonus was most important to them to make a potential move, 21% reported looking for a more stable bank; 22% said the bank's reputation is most important, while 30% want to hear about other advisors' job satisfaction rates at the hiring bank.
"People looking to move say they're doing so for all kinds of reasons, but ultimately it always comes down to money," Diamond says. "That 27% [of advisors seeking a signing bonus] is probably just those who produce enough to be entitled to a signing bonus; if anyone could get one, that number would be higher. There are lots of other reasons-ego gratification, happiness, customer satisfaction-but these are all things that contribute to higher production and a better payout."
Whether an advisor will actually move is another thing. Just over half of respondents (52%) have no intention of leaving their existing banks, and only 8% chose the survey option: "Get the hell outta here!" Twenty-four percent say they've seen happier times, but are hanging in to see where the rising economy takes them. The remaining 16% see their bank as a vessel for their business rather than a job site: "It's my business, I set the tone."
Where would they go if they left the bank? Most advisors (49%) said they would go to another bank, while 40% said they would go independent, where they believe their compensation opportunities are greater. Only 11% would leave for a wirehouse or a regional. Indeed traffic may be going the other way. "I'm working with one guy who used to think bank reps are losers, but since his production fell during the recession, I've been able to put that misconception to bed," Rummage says. "After talking to a program manager at a bank, this guy's like a kid in a candy store-he's been offered a better platform than where he is now and he gets warm leads!"
Most bank advisors seem pumped. Eighty-two percent plan to increase their pay the old-fashioned way, by raising production. And most agree that the bank channel is the place to do it.