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Will higher wealth manager base salaries drive the right behaviours?

by Elsa Buchanan on Apr 24, 2014 at 08:48

‘It is very difficult [to find a solution] because while people need to be incentivised to work hard, incentivisation should be done the right way and a lot of it should be done around retention of clients,’ the source said.

In the source’s view ‘the industry generally is in a bad place’ due to incentivisation structures. ‘A lot of cleaning up is needed, as there is still a lot of bad practice out there.’

The source also views small to medium-sized companies as more incentivised to work in their clients’ interests, as the ongoing advice fee they receive is based solely on the growing value of clients’ investments.

‘That’s a natural incentivisation, but banks or bigger wealth management companies don’t do that, because trail payment was, and is, retained by the company. If that could, in some way, be shared with the adviser that would be a natural, increasing level of income, which would incentivise them to do the right thing.’

Allowances: new bonuses?

The source added firms were also using so-called ‘allowances’ to replace bonuses to ‘fiddle with the system’.

HSBC became the first UK bank to reveal how it adapted to the pay restrictions imposed by the European Parliament and the UK regulator in February. The bank’s chief executive, Stuart Gulliver, received a £1.7 million ‘fixed pay allowance’ in 2013, pushing his pay up to £4.2 million up from £2.5 million last year. Meanwhile, just under 240 of HSBC’s bankers received over £1 million in fixed pay allowances.

The ‘fixed pay allowance’ is paid in shares every three months on top of salaries.  Another type of allowance comes in shares that can only be sold after five years, which were handed to 111 bankers, while others were handed extra payments in cash.

HSBC did not specify how allowances had been applied to the private bank, but many view it as a growing trend in the sector.

In contrast to others, Barclays upped its bonus pool by 10% in spite of a 32% fall in profits, with total incentive awards granted to £2.4 billion in 2013.

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