In their fight with bankers to attract and retain talent, wealth management firms are coming up with innovative ways to pay their employees that range from deferring compensation to forking over many years of bonuses up front.
"Companies are taking a look at their compensation arrangements and saying, 'We're in a tough time. How do I make sure that I'll keep my best people?' " said Jim Sillery, a principal in the Chicago office of Marsh & McLennan Cos.' Mercer Resource Consulting.
Howard Diamond, the managing director of the Chester, N.J., recruiting firm Diamond Consultants LLC, said one common approach is for companies to pay high salaries to their best advisers and "then make them owe the money back to you."
To hire someone who produces $1 million or more of annual revenue and has a clean compliance record, some wire houses will lend newcomers 200% to 250% of the annual revenue up front, Mr. Diamond said. Typically the new employee will need to repay that sum within nine years, but the loan is forgiven at 1/9th the amount each year the adviser remains at the firm.
But Richard Gill, vice president at Focus Financial Partners LLC, a wealth advisory firm headquartered in New York and San Francisco, said advisers end up paying extra taxes in that scenario. "I'm not sure the people signing these seven- and 10-year deals understand what they're getting into," Mr. Gill said. "It's not in the best interest of the person receiving the money. It keeps them at the firm."
Some employers are making the cost of hiring and keeping talent easier by including stock in the mix. Stock might now make up anywhere from a fifth to a third of bonus packages that would have been entirely cash years ago.
Another approach is to defer at least part of the compensation. For example, if an adviser were offered a bonus of $1 million to join a firm, 20% of that money might be put into a deferred account payable in a year or two.
Some employers will allow their staff to defer even more of their bonuses; in those cases, the company may offer to put an equal amount into the account as an incentive to stick around.
"I think everybody has to be competitive," said Linda Mack, the founder and president of the Chicago executive search and consulting firm Mack International LLC.
If an employee has to wait a year or two to get paid, there should be some reward that makes the employee feel good about it, she said.
Some are wooing talent with ownership. Focus Financial Partners offers newcomers stakes in the firm. However, many of the small, specialized wealth management shops where one or two people hold the vast majority of the equity are eschewing that up-front strategy.
Stewart Massey, a founding partner of the Morristown, N.J., investment advisory firm Massey, Quick & Co. LLC, said he does not normally give people equity participation when they walk into the door, though he did bring in one adviser, whom he would not name, with an equity offer.
Instead, some employees have been given the chance to share in the firm's profits, while working on an understanding that if they stay long enough they can receive equity, Mr. Massey. "Having a culture of ownership is extremely important," he said. "It helps attract and retain better people."
Wells Fargo & Co., JPMorgan Chase & Co., Morgan Stanley, and UBS AG did not returns calls by press time.
Mr. Diamond said bankers and wealth managers will keep looking for "ever more new and ingenious ways" to hire and retain the best managers. "It'll continue to be a race for talent."