Broker Check

The NO Surprises Compensation Plan: Business as Usual at Cutter & Company

| December 21, 2017

Financial advisors can’t help but wonder what’s next. With each passing year, the compensation plans rolled out at the big wire house firms offer a new round of surprises. And each year the general satisfaction level financial advisors feel toward their firm seems to sink a bit more. Compensation is but one factor in satisfaction surveys, but it’s clearly an important one.

A typical example is the recent ARTICLE IN ADVISERHUB that stated Morgan Stanley will recalculate payout levels on a monthly basis in 2018 rather than twice a year (which itself was a change the firm only introduced in 2017). Most brokerages calculate payout percentages for an entire year based on the broker’s production from the previous year. “It’s smoother than the old system,” a Morgan Stanley spokesperson said. “It’s always capturing a 12-month period, so one month’s change has less impact.” But observers believe it will likely just cause brokers more pressure to perform, and perhaps think twice about taking long vacations, since an absence from the firm can affect their monthly cash flow under the new system.

By analyzing the numbers monthly, it is likely there will be many months where payouts will be lower than had the number been annualized. So, hurdles for hitting the thresholds an advisor has become accustomed to will require more effort. An exception would be when clients are moved from a commission-based to a fee-based model, where peaks and valleys would be reduced to a degree (unless the financial markets nosedive).

Changes like these add up, negatively, over time. J.D. POWER’S 2017 SURVEY found the highest-performing financial advisors had the steepest decline of satisfaction with their firms. The survey found “a confluence of factors, including continuing changes to compensation, uncertainty over the Department of Labor Fiduciary Rule, emerging technologies like robo-advisors, and waning faith in firm leadership are all contributing to the trend.”

How Compensation Pays-off for Cutter & Company Independent Financial Advisors
Whenever these topics emerge, we can’t help but wonder ‘why’? Cutter & Company (an independent Broker-dealer and Registered Investment Advisor) has always, dating back to the beginning of the firm in 1988, offered a compensation plan with NO surprises. It is simple. It has never changed – other than to become more beneficial for the independent financial advisors who work with Cutter & Company. It rewards them for serving their client’s best interests. Check it out at – that’s right, we publish our payouts and our expenses for transactional business right on our website.

Cutter & Company financial advisors get the percentage payout described on every dollar earned – no matter the product or service. Also, there are no monthly hurdles until there is a new level achieved. And significantly, certain products have ticket charges that are deducted from gross compensation (rather than net) prior to calculating the payout. And this method results in increased payouts that will add up over time. But it’s not how most firms calculate it. The majority compute the payout percentage on your net commission – and THEN take out your ticket charges.

If a consistent, transparent compensation plan that won’t deliver surprises to you every year would interest you, give us a call. We can also discuss the many other ways we can help experienced financial advisors who are ready to set up their own practices to run their business, their way.