National Planning Holdings unveils surprising pay plan

Last year, National Planning Corp. and its sister broker-dealers shocked the independent-contractor broker-dealer industry with its lucrative recruiting packages to independent representatives. Now, the four firms in the network of National Planning Holdings Inc. of Santa Monica, Calif., have revamped the deal and — in a move that is puzzling to many — will give bigger producers a smaller percentage of their fees and commissions as a bonus when they join the firm than those who bring in less business. Jim Livingston, chief executive of National Planning Holdings, declined to comment about the specifics of the new recruiting offer but said that the "declining scale is in light of the fact that we have a grid payout that increases in size."
Payout is the percentage that brokers receive for selling various investment products. "We've changed our focus more toward development and growth of the reps' practice," Mr. Livingston said. "We're not abandoning recruiting but focusing on organic growth and practice development." According to industry sources familiar with the plan, reps and advisers who produce between $500,000 and $2 million in fees and commissions — known as gross dealer concession — will receive the largest offer from National Planning, a seven-year forgivable note that pays the rep 30% of his or her GDC from the previous 12 months.

AN ODD TWIST

Reps and advisers who generate more GDC, however, are slated to get a much smaller percentage of their production as an enticement to join, with the biggest-producing reps getting the smallest percentage deals. For example, reps who produce between $2 million and $4 million in GDC are scheduled to get a seven-year note that pays 24% of production, while reps who produce be-tween $4 million and $6 million will receive a seven-year note that pays 18% of production. Reps above that figure, giant producers coveted by many broker-dealers in the industry, are scheduled to receive a seven-year note that pays just 12% of production. National Planning's latest move is an odd twist in the recruiting wars among independent-contractor reps, according to recruiters and industry observers. Big producers are often known for oversized egos and could easily take offense at a deal that — while still substantial in dollars — gave them a lower percentage of GDC than lesser producers, those observers said. "I'm baffled," said Liz Nesvold, managing partner for Silver Lane Advisors LLC of New York. "Arguably, you'd want to encourage or attract people with bigger books." Ms. Nesvold focuses on transactions that move teams of brokers out of wirehouses into other sales channels, such as private banks. And she works with big producers — teams that generate more than $4 million in GDC. "Firms are bidding up," Ms. Nesvold said. One recruiter who works with wirehouse reps and advisers, however, said that he sees some logic to National Planning Holdings' plan. Such a deal that pays a lower percentage to bigger producers could be an indication of more prudent, cautious thinking by a broker-dealer's management, said Danny Sarch, founder of Leitner Sarch Consultants Ltd. in White Plains, N.Y. "Some firms culturally are afraid of the megaproducers because they're so demanding," he said. Such a plan sends a financially conservative message, Mr. Sarch said. "We're capped at whatever the dollar amount is," he said. "We're only putting this much money on the table." National Planning Holdings — the broker-dealer network owned by Jackson National Life Insurance Co. of Lansing, Mich. — is no stranger to shaking up its competitors. Last year, it increased its offer to recruits to an astounding 42.5%, to the delight of reps and the displeasure of competing executives.

SWEETER DEALS

That move forced other broker-dealers, including those that in the past had made negligible offers to reps, to sweeten their recruiting packages and therefore increase the cost of doing business in an industry that frets over pressure on its profit margins. And the plan was a success, said National Planning Holdings' Mr. Livingston. The network added $100 million in GDC he said, adding that the figure also included an acquisition of a broker-dealer by Invest Financial Corp. of Tampa, Fla., one of the firms in the network. The three other broker-dealers in the National Planning Holdings network are Investment Centers of America Inc. of Bismarck, N.D.; National Planning Corp. of Santa Monica and SII Investments Inc. of Appleton, Wis. Last year, the network's reps and advisers produced about $600 million in GDC, and the goal for this year is in the neighborhood of $670 million to $680 million, Mr. Livingston said. Rep and adviser head count at the network skyrocketed last year. According to the InvestmentNews winter survey of independent broker-dealers, the National Planning Holdings network increased its roster of affiliated reps and advisers by 36% last year, to 3,570. E-mail Bruce Kelly at bkelly@investmentnews.com.