Compensation: Key trends and best practices
November 15, 2016 4:08 PM
Getting it right
Compensation is the single largest expense for an advisory firm. Yet, they can't skimp on this critical business need. How firms determine and distribute compensation is critical for meeting the demands of the increasingly competitive industry.
Please click through the images above to see how you stack up against your competition in breaking out people-related expenses, and devising compensation structures.
Please click through the images above to see how you stack up against your competition in breaking out people-related expenses, and devising compensation structures.
Where it goes
Nearly half of revenue for the industry's best managed firms goes to professional compensation.
"As RIAs grow and add more employees, it's crucial for owners to refine their approach to reinforce the desired behavior in their employees," says John Furey, principal and founder of Phoenix-based Advisor Growth Strategies.
"As RIAs grow and add more employees, it's crucial for owners to refine their approach to reinforce the desired behavior in their employees," says John Furey, principal and founder of Phoenix-based Advisor Growth Strategies.
Cash is king
Cash compensation as a share of revenue for advisory firms has declined only slightly over the past five years, from 51% in 2011 to 48% in 2015, according to FA Insight, a division of TD Ameritrade. Other people-related expenses, such as retirement and insurance benefits, have held steady at 7%.
Steady payment
Compensation for revenue generators, including lead and associate advisers and business development specialists, dominate firm expenses. After climbing nearly 20% in 2013, cash compensation for these employees has remained largely unchanged at around $236,000.
Rise in non-revenue pay
Average compensation for non-revenue roles, such as client service representative, operations manager and administrative assistant, has risen steadily over the past five years.
Salary/commission vs. incentive comp
Despite increased attention being focused on performance-based incentive payments and discretionary bonuses, traditional salary or commission compensation remains dominant.
How Wescott determines compensation
Here's how Wescott Financial Advisory Group, a $2.3 billion RIA in Philadelphia, structures compensation. A CFP credential is required for all senior positions.
"We want to make sure compensation for each position in the firm is carefully aligned with experience and responsibilities," says Grant Rawdin, the firm's founder and CEO.
"We want to make sure compensation for each position in the firm is carefully aligned with experience and responsibilities," says Grant Rawdin, the firm's founder and CEO.
How Bronfman sets compensation
Neal Simon, CEO of Bronfman E.F. Rothschild, a $2.5 billion RIA with 75 employees, is considered an industry innovator when it comes to structuring compensation.
Simon believes in granting key operational staff, such as directors of investment operations and technology, equity compensation for their contributions.
"We want to align the incentives of our senior staff and key contributors with the success of the firm, and equity compensation is a great way to accomplish that goal," he says.
Simon believes in granting key operational staff, such as directors of investment operations and technology, equity compensation for their contributions.
"We want to align the incentives of our senior staff and key contributors with the success of the firm, and equity compensation is a great way to accomplish that goal," he says.
