Wachovia Securities is changing the way it pays its 6,000 brokers, and the changes may throw a monkey wrench in fund distribution. The wirehouse, formerly known as Prudential Securities, is making the changes to encourage brokers to use its wrap account program rather than rely on trading commissions.

For fund firms, the changes mean that brokers selling funds outside the wrap program will see a cut in their commissions. If brokers use the wrap program they may end up steering clients to separately managed accounts rather than fund wraps. SMA wraps in the major wirehouses offer a limited lineup of preselected money managers who are typically paid substantially less than they would receive for managing assets in retail funds.

The structure of the compensation program is a sharp break from the practices of the other wirehouses, including Merrill Lynch, Citigroup's Smith Barney and UBS Securities (PaineWebber).

The incentives Wachovia is providing to brokers to change their ways are strong ones. It will pay brokers up to 50 percent of revenue produced above a monthly minimum, reports the Wall Street Journal. Those brokers sending trades outside of the wrap program will be assessed a $15 charge.

Wachovia is also eliminating broker incentives on sales of is proprietary mutual funds and annuities.

Wachovia will give a 20 percent cash payout to brokers for their first $9,000 of production. Above that amount they will be paid the 50 percent. New brokers will receive a 40 percent payout on the first $9,000 during their first year.  

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