Gross or net of redemptions, flat or tiered: two plans that cost almost the same at target and pay very different wholesalers either side of it.
A wholesaler's incentive is a rate in basis points applied to the sales credited to their territory, and the design choice that matters is what counts as a sale: gross subscriptions, or net of money that redeems within a clawback window. On an illustrative territory with 60 million of gross sales and 6 million redeemed within twelve months, a flat 15 basis points on gross pays 90,000 and a tiered 10, 20 and 30 basis points on net pays 87,000. The two plans cost almost the same at target and pay very differently either side of it.
Worked in full in The Private Wealth Fundraiser by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Wholesalers, the external salespeople who cover financial advisors at private banks, wirehouses and wealth platforms, are paid a base salary and an incentive tied to sales. For a private markets manager building a wealth channel, the incentive plan is the main lever on behaviour it controls directly. Paying on gross subscriptions is simple and is what most new teams start with. It also pays for money that leaves, and pays the weakest territory as generously per dollar as the best one.
| Input | Value |
|---|---|
| Gross subscriptions credited to the territory | 60,000,000 |
| Of which redeemed within twelve months | 6,000,000 |
| Plan A: flat rate on gross sales | 15 bp |
| Plan B, on net sales: first 25 million / next 25 million / above 50 million | 10 / 20 / 30 bp |
| Base salary | 150,000 |
| Benefits and payroll costs, on base | 20% |
| Travel and entertainment | 70,000 |
| Manager's net revenue margin on AUM, after retrocessions | 0.70% a year |
Plan A, flat on gross. 60,000,000 × 15 ÷ 10,000 = 90,000. Of that, 6,000,000 × 15 bp = 9,000 rewards subscriptions that have already left.
Plan B, tiered on net. Net sales = 60,000,000 − 6,000,000 = 54,000,000.
First tier: 25,000,000 × 10 bp = 25,000. Second: 25,000,000 × 20 bp = 50,000. Third: 4,000,000 × 30 bp = 12,000. Total 87,000, an effective 16.1 bp on net sales, with a marginal rate of 30 bp.
In Excel, with net sales in B1: =MIN(B1,25e6)*0.001+MAX(MIN(B1,50e6)-25e6,0)*0.002+MAX(B1-50e6,0)*0.003.
Total cost of the wholesaler, Plan B. 150,000 + 30,000 + 70,000 + 87,000 = 337,000, or 62.4 bp of net sales.
Payback. 54,000,000 × 0.70% = 378,000 of margin a year; 337,000 ÷ 378,000 = 0.89 years, 10.7 months of margin on the year's net sales.
| Line | Plan A, gross | Plan B, net tiered |
|---|---|---|
| Sales base | 60,000,000 | 54,000,000 |
| Incentive | 90,000 | 87,000 |
| Base, benefits, travel | 250,000 | 250,000 |
| Total cost | 340,000 | 337,000 |
| Cost per net sale, bp | 63.0 | 62.4 |
| Payback on one year's margin, months | 10.8 | 10.7 |
At the target, the plans are within 3,000 of each other and incentive is 26 per cent of the wholesaler's cost under either. That is by design: a new plan is usually calibrated to cost the same as the old one at the budgeted territory. The difference lies in who it pays.
| Gross sales | Redeemed | Net sales | Plan A | bp of net | Plan B | bp of net |
|---|---|---|---|---|---|---|
| 30,000,000 | 10% | 27,000,000 | 45,000 | 16.7 | 29,000 | 10.7 |
| 30,000,000 | 25% | 22,500,000 | 45,000 | 20.0 | 22,500 | 10.0 |
| 60,000,000 | 10% | 54,000,000 | 90,000 | 16.7 | 87,000 | 16.1 |
| 60,000,000 | 25% | 45,000,000 | 90,000 | 20.0 | 65,000 | 14.4 |
| 90,000,000 | 10% | 81,000,000 | 135,000 | 16.7 | 168,000 | 20.7 |
| 90,000,000 | 25% | 67,500,000 | 135,000 | 20.0 | 127,500 | 18.9 |
The flat plan pays the weak, leaky territory 45,000, or 20.0 bp per net dollar, for the poorest result in the table. The tiered net plan pays it 22,500, 10.0 bp. At the other end it pays the best territory 168,000 against 135,000. The budget is the same; the money moves from the bottom of the team to the top, and from redemptions to retained assets. Each extra million of net sales above 50 million earns the wholesaler 3,000 under Plan B against 1,500 under Plan A.
The net plan also defines the break-even territory. With 250,000 of fixed cost, a wholesaler needs 45.0 million of net sales for one year of the 0.70 per cent margin to cover their full cost including the incentive. Below that the seat is being funded by later years' fees, which is acceptable only if the territory's assets stay.
Paying on gross sales without a clawback in a product with early liquidity. In a semi-liquid fund, an advisor can move a client in and out within a year, and if the client later subscribes again, a gross plan pays the wholesaler a second time for the same money. The clawback window should match the period the manager needs to earn back its acquisition cost, roughly the 10.7 months computed above, not an arbitrary quarter. The second mistake is designing the tiers on the whole team's plan without checking a weak territory: a tiered plan with a low first tier quietly halves pay where coverage is thin, and the wholesalers there will notice before management does. Coverage and capacity per wholesaler are worked in how many financial advisors one wholesaler can cover, and the team's overall economics in how much AUM a wealth distribution team needs to break even.
The forecast that sits behind a channel's sales targets is in the free workbook for this case.
On net sales where the product offers early liquidity, with redemptions inside a clawback window deducted. In the illustrative case a flat 15 basis points on gross pays 9,000 for 6,000,000 of subscriptions that redeemed within twelve months, and a weak 30 million territory losing 25 per cent of its sales costs 20.0 basis points per net dollar under the gross plan against 10.0 under a tiered net plan.
In the illustrative case a base of 150,000, 20 per cent benefits and 70,000 of travel make 250,000 of fixed cost, plus an incentive of 87,000 on 54,000,000 of net sales: 337,000 in all, 62.4 basis points of net sales, repaid by a 0.70 per cent margin in 10.7 months.
Enough for the manager's annual margin on those sales to cover fixed cost plus the incentive they trigger. With 250,000 of fixed cost, a tiered plan of 10, 20 and 30 basis points and a 0.70 per cent net margin, the illustrative break-even is 45.0 million of net sales for one year of margin to pay for the seat.
This article is one calculation from The Private Wealth Fundraiser. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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