BrokerDealer Compensation: Re-Visiting Retention Contracts; Advisor Advisory

retention advisor contracts

BrokerDealer.com blog update profiling the topic of compensation agreements between brokerdealers and respective financial advisors operating under BD umbrellas is courtesy of extract from 10 Mar article in BankInvestmentConsultant.com

With many long-term retention contracts expiring, wirehouses are under pressure to once again ensure the retention of their top producers. Kenton Shirk, associate director at Cerulli Associates, discusses how management is leveraging deferred comp to stem defections.

What are the latest triggers resulting in advisor moves?

A change dictated by B-D leadership may cause advisors to switch firms, especially if advisors feel their net financial benefits have decreased or their employer is rigidly dictating undesirable new policies. Industry recruiters have told Cerulli that continuous changes to comp structures also have left some advisors feeling they need to work harder to earn the same amount of money. Competitors can use this point of frustration to their advantage when recruiting advisors.

Describe the pros and cons when firms overreach, in terms of comp. 

B-Ds need to weigh the strategic benefits of a new comp strategy with the potential impact on advisor satisfaction.

An example is Merrill Lynch’s introduction of relationship pricing in its Merrill One platform in which a client’s fee considers the total financial relationship with both Merrill Lynch and Bank of America. Over the long term, it makes investor relationships stickier since they might be disinclined to follow an advisor to a competing firm since it means giving up discounts across their wealth management and banking accounts.

Yet in the short term, established advisors could potentially feel their parent firm is requiring pricing discounts they might not otherwise offer, creating a sense of frustration.

Will cutting the comp on smaller clients be significant enough to impact retention?

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