Wells Fargo just announced sweeping changes to the way it will pay its
producers financial advisors in 2017. None of this stuff would work in the context of a Fiduciary Standard. Monthly production hurdles – meaning how much in fees and commissions the producer can rack up – lead to higher payouts for the producer…
The core part of Wells brokers’ compensation—a 22% payout on the first $11,500 to $13,250 they produce monthly and 50% on revenue above the hurdle
Imagine you’re a Wells Fargo advisor and there’s only one day left in the December pay period. You know you need to get above $13,250 in order for your payout percentage to leap from 22% to 50% on the revenue above that level. Is there any chance you’re not going to find a commissionable trade to do or a loan to make or a product to sell?
Of course you will.
It’s not even the advisor’s fault. The incentives are perverse. And this thing with the grid is probably the most benign of all the inherent conflicts. There’s so much worse out there, but this one is a constant and there are 12 opportunities a year – 12 monthly pay periods – for it to be a potential problem.
I witnessed the problem with these commission grids firsthand in my past life as a broker and a co-branch manager. I’ve always said that all you need to do is look at the customary spike in trading activity for the last two days of a given pay period to see incontrovertible evidence that human nature will always win out over the best intentions. And if the intentions are bad or even blasé, forget about it.
Honestly, I don’t understand how this is even a thing anymore.