The past year has been a good one for big retail brokerages, but many brokers aren’t viewing the increased revenues as a sign to sit back and relax. Instead, some say they’re feeling pressure to keep those revenues up by touting investments with higher commissions and fees. And for investors, that could mean added risks.
As reported Feb. 25 by the Wall Street Journal, more of the larger retail brokerage firms now have an eye on promoting financial products that generate greater profit margins. According to a broker at UBS Wealth Management Americas in New York, there has been a big push to put client money in alternative investments, as well as the lending business.
“Alternative investments are some of the biggest profit generators for the firm,” he said in the WSJ story. Asset-based lines of credit – a relatively easy way to earn a few percent in interest – also are popular.
Part of this newfound encouragement is tied to the way in which UBS pays its brokers. As reported in the Wall Street Journal article, UBS recently fine-tuned its basic formula for paying brokers a percentage of the revenue they produce to include incentives for selling products such as mortgages and credit lines. The changes went into effect in 2013.
Similar formulas, or pay grids as they’re called, are used at Morgan Stanley Wealth Management and Merrill Lynch, which also reward bonuses to brokers with growing loan-based business.
According to the WSJ story, financial advisers at Merrill Lynch also feel the continued push to get more assets into value-based models – i.e. those that charge clients a fee for advice and a financial plan.