Page 35 - Investment Advisor April/May 2023

THE FAST TRACK

By Angie Herbers

6 Steps for Building the Best Comp Plan

for Your Firm

Like clients’ financial plans, advisors’ compensation structures aren’t

only about money.

uilding an effective compensa- employee argues for a raise based on
tion structure: It’s one of the the number of clients they serve, then
Bmost common pain points in there’s a disconnect.
running a financial advisory practice. If the employee shifted focus to
Firm leaders who look to benchmark- quality rather than quantity — in other
ing studies and other popular means of words, to serving clients exceptionally
determining pay frequently find that well — then the compensation would
their team members are not quite satis- automatically come.
fied with the results. And that means This is an example of how core values
a great deal of ongoing management can guide compensation decisions. If the
is required to grapple with employees’ employee doesn’t share your core val-
requests, concerns and questions. ues, of course, you’ll likely need to move
Usually, the problem behind bro- on from that person.
ken comp structures is a failure to look
beyond money and review the structural 2. CONSIDER YOUR SERVICE MODEL
It’s natural for elements of a business. Effective com- It’s perilous for advisory firm leaders to
employees to ask for pensation structures don’t exist in a vac- rely solely on industrywide compensa-
uum. They grow from an organization’s
tion benchmarks, because those bench-
more money over core values, service model, organization marks are generally not broken out by
time. The problem structure, growth goals and career paths. service model. Aggregate benchmarks
for “wealth management firms” are of
Your firm’s comp structures aren’t
arises when they’re only about money — just as your clients’ limited use, since wealth management
financial plans aren’t only about money.
firms often employ different client ser-
asking for more Let’s look at each of these organizational vice models.
A firm that charges only hourly fees,
money based on elements and how having a firm grasp for example, typically cannot pay its
on them can point the way to the most
accomplishments appropriate and successful compensa- employees in the same way as a firm that
that don’t fit within tion structure for your firm. charges only assets-under-management
fees. Likewise, firms that combine AUM
your culture. 1. DEFINE YOUR CORE VALUES fees with flat fees can’t pay their employ-
ees the same way as firms that charge by
The importance of core values is that
they establish boundaries around who the hour or exclusively charge AUM fees.
belongs at your firm and who doesn’t. The fees paid directly by clients affect
It’s natural for employees to ask for the compensation an employee is paid.
more money over time. The problem To create the most effective compensa-
arises when they’re asking for more tion structure, organizations must take
money based on accomplishments that into account specifically how clients pay
don’t fit within your culture. for their services, how those revenues
For instance, let’s say a firm’s core are generated and the risks a particular
value is “serve with impact.” If an service model has on profits.

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