Wells Fargo juices retirement payout, adds non-solicit

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Wells Fargo is boosting advisor retirement payouts, in a bid to cope with the industry’s aging demographics and facilitate transfers of client lists between older and younger brokers.

However, it comes with a catch. Advisors have to sign a multi-year non-solicitation agreement to get the funds.

“We’ve been working on this for a long time,” says John Alexander, head of advisor lead at Wells Fargo Advisors. “We have a belief that most FAs are either going to be buyers or sellers of business. That’s the demographics. There will be lots of transfers of client books and we want to make sure that clients are taken care of.”

The company says that under its new summit program, which launches April 1, retiring advisors can receive a loyalty award from Wells Fargo equal to 25% of the retiring advisor’s T-12. That award is in addition to what the retiring and inheriting advisors agree is the valuation of the book of business; the inheriting advisor pays for that portion in installments to the retiring advisor over a five-year period, according to the company.

The inheriting advisor, meanwhile, gets a payment from Wells Fargo of up to 100% of the retiree’s T-12 which helps offset the cost of the acquired book, according to the company. The payment comes in the form of an installment plan with two stages, one beginning at the departing advisor’s retirement day and a second three years later, the firm says. Each installment consists of monthly payments lasting a decade.

In an example provided by the firm, a retiring advisor enters the program with a T-12 of $500,000, and gets a $625,000 payment (based on a negotiated valuation of 125% of T-12 between the retiring and inheriting advisors). Meanwhile, the receiving advisor gets a $500,000 payment from Wells Fargo made in two installments of $250,000. The first is granted at the retirement date in the agreement and is paid in monthly amounts over 10 years; the second installment begins three years later and follows a similar schedule, according to the company. The inheriting advisor can also opt to receive the book acquisition award as a single upfront loan.

The advisor also has to sign a non-solicitation agreement that lasts the duration the payments (approximately 60 months) plus an additional 36 months under the summit program, according to Wells Fargo.

“The advisor retirement programs across the industry are regulated and must contain certain restrictions,” a spokeswoman said in an email. “These are designed to protect the retired advisor’s payment stream in retirement. To be compliant, our FA Succession program does contain these required components.”

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The program is open to all advisors, whether on teams or solo producers, according to Wells Fargo executives.

The new program follows the firm’s introduction last year of a team builder app available on its advisor desktop, which is designed to help advisors identify potential new team members or teams they could join.

As of 2017, the average age of a financial advisor was 51.8 years old, according to data from Cerulli Associates. For wirehouse advisors, the average was 52.2 years.

In addition to having an aging brokerage force, Wells Fargo also has a shrinking one. Advisor headcount has been falling since a phony accounts scandal rocked the bank in 2016. For the fourth quarter of 2018, the firm reported having 13,968 advisors, 4% fewer than the same period a year ago. Client assets for Wells Fargo’s retail brokerage unit, at $1.5 trillion, were down 10%.

Executives hope that the new summit program will not only entice advisors to stay and finish their careers at Wells Fargo, but also juice growth.

“What typically happens is that an advisor is in their life cycle, and they are in growth mode, and at some point that growth slows down,” Alexander says. "What we have seen with our existing succession plan is that when an advisor takes on another book of business, their productivity increases. The book tends to grow a lot faster. And that tends to be because you are more engaged with the clients.”

The new summit program may add to the firm’s costs, he says, but a reinvigorated advisor force could be reward enough for the company.

Editor's note: The story has been updated with additional details about the retirement payouts.

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