In one of the most dramatic overhauls to its compensation plan in two decades, Raymond James has introduced a new product-neutral pay grid as the firm looks to stay competitive with industry standards.
“This is the first significant change to our grid during my almost 20 year tenure at Raymond James,” Tash Elwyn, president of the firm’s Private Client Group, said in a phone interview with On Wall Street. “With this new grid we have achieved our goal of continuing to offer a very competitive payout within an environment and culture at Raymond James that’s unique in that we treat our advisors with respect.”
The new grid structures advisors’ percentage payout based solely on their trailing 12 gross commissions rather than the type of products being sold. The firm also eliminated discount penalties on equity and option commissions. Most firms have latched onto this strategy as a way to reduce the potential conflict of interest when selling products, according to Andy Tasnady of compensation consultancy Tasnady & Associates. “They’re one of the last one’s left with product based payouts,” he said.
If Raymond James seems to be arriving late to the scene, that’s because the move has been over five years in the making and is “the most telegraphed compensation update in the history of Wall Street,” according to Elwyn, who is equally as proud of the process as he is the final product. The firm based its new model off “tremendous input” that came from frank feedback on what financial advisors and branch managers felt worked well or not so well, he said.
As a result, Raymond James added more tiers to the compensation grid. There are now 15 production levels as opposed to five. So, for example, advisors who had more than $300,000 in production could reach a new payout level at $350,000 rather than waiting until $500,000.
“That makes for a smoother progression,” Tasnady said. “Advisors like that typically they can reach and hit the level as opposed to being stuck in the middle.”
According to Elwyn, the new plan is designed to be “cost-neutral” to Raymond James. The new payout percentages should be roughly similar to what an advisor with an average mix of products was making on the earlier pay grid.
“It’ll probably work out to comparable levels,” Tasnady said. “In some cases it’ll be worse if you’re an advisor that had a lot of products that paid higher in the past. On the flip side, if you’re an advisor who had a large mix of products paying lower, it will help.”
The new grid won’t actually take effect for current advisors until September 23, 2013, which is the beginning of Raymond James’ 2014 fiscal year and also the day legacy Morgan Keegan advisors are set to transition over to Raymond James’ pay structure.
“We worked with Morgan Keegan to ensure that we took a measured approach to these changes including conversations and discussions with a number of Morgan Keegan financial advisors,” Elwyn said. “We were furthermore committed to keeping Morgan Keegan advisors on their current grid for the entirety of the 2013 fiscal year.
New recruits to the firm after January 14, 2013, will be working from this compensation grid as soon as they join, however. According to Tasnady, that gives Raymond James time to “work out the kinks” and ensure that any new software and procedural changes are fully operational before being rolled out across the firm.
“Maybe they’re going to test out some of the administration on new people first,” he said. “Converting the existing reps can be a challenge.”
While the compensation grid was changed significantly, the firm left most of its plan, such as deferred compensation and the lack of account minimums, untouched.
Raymond James Brach managers found out about the move late last week and advisors shortly thereafter. According to Elwyn, reaction has been positive thus far:
“The initial response was overwhelmingly positive from our advisors,” he said. “Understanding and acknowledging that advisors are impacted differently by this, our advisors have widely applauded the collaborative and thoughtful approach that we’ve taken to arriving at the new compensation.”