Page 48 - Investment Advisor July/August 2022

THE NEW SCHOOL

By Caleb Brown

In Today’s Tight Job Market, Advisory Firms

Need to Monitor Industry Compensation

Here are pros and cons of some common pay structures in the advisory business.

ven though the Great Resig- AUM, new clients, etc.). Many firms set-
nation typically has had its great- tle on a combination of firm factors, but
Eest effect on lower wage earners also individual factors (e.g., plans com-
in the restaurant and hospitality indus- pleted, client development, client reten-
tries, financial planning firms are not tion, exams passed/certifications gained,
immune. In turbulent times such as these, training completed.). Keep in mind that
firms need to ensure they are closely whatever you set as the metrics, espe-
monitoring the compensation structures cially, for the individual component, they
to decide if an adjustment is necessary. need to be laid out very clear.
Below are the most common compen-
sation models for new financial plan- SALARY PLUS FEE SPLIT
ning professionals. They assume the Pros: Utilized frequently in the fee-only
position is a W2 employee in an RIA. RIA and hybrid RIA structures. An incen-
It would be for a paraplanner or asso- or services that aren’t necessarily a fit tive for team members to perform activi-
ciate planner role that is responsible for the client situation, and/or ‘distract’ ties that generate additional revenue for
for financial planning support and not the team member from the support work the firm, and participate financially in the
primarily doing business development. they’re supposed to be doing for their lead growth of the firm’s revenue base. Creates
advisor as well. Can be difficult to admin- built-in incentives for ongoing client reten-
STRAIGHT SALARY ister due to the burden of keeping up tion because fees will stop if the client
Pros: This is the most simple and with pay-out grids, schedules, rep codes, leaves. Also builds in team member reten-
straightforward to set and administer etc. Commissions are usually 50%/50% tion as longer-tenured employees may find
from the owner’s perspective. If you of the total amount on any revenue gen- it more difficult to walk away from built-in
need help determining salary amounts, erated from product sales for split cases recurring income stream to join another
download the New Planner Recruiting where another planner may be involved, firm if clients stay at the original firm. This
2021 Salary Report, which includes ~200 but can be as little as 10% depending on can be paid for bringing in a client when it
data points collected recently from job grid payout or amount of contribution to is not part of the primary role or servicing
seekers on pay expectations. close the sale up to 70-80%. a client that someone else brought in.
Cons: Doesn’t incentivize team mem- Cons: Can create a significant rev-
bers to deliver results beyond basic job SALARY PLUS BONUS enue stream for team members that,
responsibilities, which is why it is the Pros: The most common structure in the once it builds up over time, can actu-
least common structure we see. RIA channel. Provides a stable month- ally disincentivize them to continue to
ly base wage, plus upside potential if go beyond their basic job requirements.
SALARY PLUS COMMISSION efforts produce returns above basic job We have seen new client development/
Pros: Most common in the hybrid RIA requirements. A typical bonus structure servicing splits pay up to 50% of first
broker-dealer affiliation model. Provides can be anywhere from 5%–25% of the year’s fees (AUM, retainer, or hourly)
a guaranteed minimum amount each base salary amount. Can be set as discre- with zero residual payments, all the way
month, combined with upside potential tionary, or formulaic, by firm leadership. to no upfront fee but 50% fee split in per-
if certain products and/or services are Cons: Can easily become overcompli- petuity, and many others in between.
sold and generate revenue in addition cated, and team members don’t see it as a
to the core support-oriented job duties. benefit if the metrics are solely based on Caleb Brown is co-founder and CEO of New
Cons: Can create a conflict by incen- the firm’s performance that they have lit- Planner Recruiting. His podcast is at new- Adobe Stock
tivizing the promotion of products and/ tle to no control over (e.g., profit, revenue, plannerrecruiting.com/category/podcast.

46 INVESTMENT ADVISOR JULY/AUGUST 2022 | ThinkAdvisor.com