Base compensation of private bankers in the UK increased by about ten per cent in 2001, according to a report by recruitment firm TMP Worldw...

Base compensation of private bankers in the UK increased by about ten per cent in 2001, according to a report by recruitment firm TMP Worldwide. The rise is expected to be offset by a reduction in bonuses ranging from 20 to 50 per cent, depending on the firm. Within firms, there is likely to be an even wider distribution as banks appear keen to use the economic downturn as an opportunity to reward top performers. Some of their bonuses may even match those awarded last year, sending a sobering signal to those who are not pulling their weight, the report stated.

Trends UK:

Hiring freezes at many banks, coupled with headcount reductions, consolidation of functions at some firms and a general wariness on the part of people thinking about changing jobs, all point to a slowed climate for personnel changes in 2002 unless there is a dramatic economic turnaround.
It is likely that equity, in the form of options and restricted stock, will represent a much more prominent piece of UK private banking compensation packages this year. UK private banks have been boosting the equity component of their compensation schemes for the last few years as they seek to match practices in the private client services world. The increase has been masked somewhat by the rises in cash awards but it will stand out with the reduction in bonuses this year.
Compliance officials are in demand as the Financial Services Authority’s N2 regulations kick in. The "know-the-customer" standard that has caught the attention of senior management at private banks and high net worth brokerage houses. Fiduciary professionals are also in a good position. They stand to benefit as recent market volatility underscores the importance of wealth preservation.
2001 average compensation projections for selected positions in the UK:

Level Compensation ($000s)
Division head Base 240-400 Total 300-630
Senior private client adviser Base 105-190 Total 130-300
Junior private client adviser Base 55-105 Guaranteed min. bonus - 25
Asset gatherer Base 110-145 Commission 105-180
PCS broker Draw N/A Commission 30-50 per cent of revenues
Portfolio manager UK house Base 90-105 Total 90-135
Portfolio managers US house Base 130-145 Total 180-210
Fiduciary professionals Base 125-160 Total 155-250

"This time last year there were big pay differences between organisations and people changed job to earn more. This is no longer the case and people mainly move for career opportunities. A lot of individuals are now also less likely to consider switching firm because of the risk associated with it. In market conditions like this, going into a new bank from a position of relative strength - if you have been with an organisation for some time, does raise the risk profile of an individual. People are still hiring but only for real talent not just bums on seats. There has to be a compelling commercial reason to bring someone on board rather than simply making up the projected headcount for the year," said Adam Green, private banking partner at TMP Worldwide.

The US:

Total compensation for US private banking professionals is expected to be down on last year although the report points out two factors which are expected to drive demand for private banking and private client professionals in the near future.

The first is that HNW assets have exploded in recent years. The down markets have taken a toll on HNW portfolios at the margins but the vast pools of wealth generated by the longest bull market in US history remain and the ranks of the affluent have grown, according to the report. It adds that it is reasonable to expect that the independent minded investors within these ranks have been chastened by the first bear market they have experienced and will be looking for the advice and tailored investment products that can only be found at full service private banks.

The second factor is the important contribution HNW wealth management has made to many organisations' bottom lines, even as other high profile units such as M&A and equity underwriting fell off steeply. At Citigroup for example, private banking earnings for the first three quarters of 2001 grew 19 per cent year-over-year. This contrasts with the double figure declines seen in investment banking and securities businesses around the globe.

US trends:

Average total compensation for traditional private bank relationship managers is expected to be down 20 to 30 per cent this year, with some senior executives seeing reductions of up to 50 per cent.

The formulae for compensating PCS brokers have not changed dramatically, but the premiums paid in 1999 and 2000 to lure brokers to bring their clients to new firms are gone. Actual compensation may be down as a result of production declines, but some firms will enjoy an up year due to success in attracting new clients. To the extent that discretionary bonuses are awarded, banks will continue to recognise a qualitative difference between a dollar earned in commissions versus a dollar earned in fees, rewarding brokers more generously for the latter.

Value's out performance of growth in 2001 will affect HNW portfolio managers at diversified firms and virtually everybody at investment management firms with a strong equity style bias. Those in the aggressive growth camp may see up to 50 per cent reductions in their bonuses. Individuals at value shops, or value oriented portfolio managers at large firms are expected to suffer the smallest declines at nought to 20 per cent.

Consolidation and redundancies point to a soft job market and less movement in private wealth management than has been the case in recent years, barring a market rebound. Sign-on bonuses and multiyear guarantees are unlikely to make a re-appearance in the near term. It is predicted that some firms will embark on aggressive strategic hiring programs the moment they perceive an economic turnaround, regardless of whether the market has caught up with their thinking.

2001 average compensation projections for selected positions:

Level Compensation ($000s) *1
Division head Base 300-750 Total 1,200-2,400
Investment head Base 300-750 Total 1,050-1,800
Senior private client advisor Base 150-300 Total 525-750+
Junior private client advisor Base 80-125 Total 120-225+
Asset gatherer Draw 100-200 Commission 30 - 40 per cent of revenues *2
PCS broker Draw N/A Commission 30 - 50 per cent of revenues *2
Portfolio manager.-advisory/money management firm Draw 150-200 Commission 25-30 per cent of revenues *2
Growth portfolio manager.-bank (ten-15 yrs. exp.) Base 150-200 Total 275-550+
Growth portfolio manager.-bank (five to ten years exp.) Base 100-150 Total 165-330
Growth portfolio manager.-bank (Jr.) Base 90-100 Total 85-165
Value portfolio manager.-bank (ten-15 yrs. exp.) Base 150-200 Total 425-850+
Value portfolio manager.-bank (five to ten years. exp.) Base 100-150 Total 255-310
Value portfolio manager.-bank (Jr.) Base 90-100 Total 125-250
Fiduciary professionals Base 115-145 Total 145-250

*1 Bonuses may include some restricted stock, depending on the level of bonus and/or title.

*2 Tied to newly-originated revenue and often based on tiered formulas: $0-100K=0 per cent; $100-200K 15 per cent; $200-300K = 25 per cent; $300K plus = 50 per cent. In some cases there are also trailers: five to ten per cent per year, or 15 per cent second year, five to ten per cent third year.