High payouts are key to advisor satisfaction (includes chart)

In addition, the level of satisfaction among advisors at the MGAs — measured by the gap between the importance rating advisors give the category and the performance rating they give their firms — was much higher. For the MGAs, the 0.1-point gap between average importance score (8.5) and average performance score was tiny; meanwhile, with an average importance rating of 8.9 for the remaining firms, the gap was a very high 1.4.

Fittingly, IDC and WFG were the two best-rated firms in the total compensation category, with scores of 9.3 and 8.6, respectively.

An IDC advisor in Ontario says the rewards and recognition program is what he likes best about the firm’s compensation: “There are good sales incentives with weekly prizes, and they tell people who the top advisors are. I’m competitive, and so it is motivating.”

However, if advisors at MGAs, on the whole, tend to be more satisfied with their compensation, it probably has something to do with the fact that the percentage of their income derived from the lucrative first-year commissions is higher. For instance, according to the results of this year’s Report Card, this source of revenue accounts for an average of 65% of advisors’ compensation at the MGAs, vs 50% for advisors at the other insurance firms.

IDC president Ron Madzia says his firm’s policy is simply to pay out all first-year commissions directly to advisors because: “No matter how much they like us, if we’re paying less than ABC MGA, they’re all going there. They can leave tomorrow if they want.”

The exception to this trend is Mississauga-based dedicated sales agency RBC Life Insurance Co., whose advisors’ first-year commissions make up 86.6% of their total compensation — tops among the firms in the survey. RBC Life was tied for the third-best performance rating in the category and was, along with GWL, one of only two non-MGAs to receive a rating higher than 8.0.

Ernie Murdoch, senior vice president of career sales with RBC Life, says the firm’s heaped, front-end-heavy compensation structure is “probably one of the most simple compensation packages in the industry.” The structure’s appeal — especially to advisors who are still in the process of building a business — is illustrated by an advisor in British Columbia, who says the compensation he receives “is astronomical for the work I put in. There’s no way I should be making this much.”

In contrast to RBC Life is London, Ont.-based Freedom 55 Financial, for which the percentage of advi-sors’ income derived from the first-year commissions is a much lesser 51.1%. Freedom 55 advisors rated their firm’s total compensation at 7.5 in performance, the third-lowest in the category and significantly lower than the 8.7 importance rating they gave to the category. Whereas RBC Life’s straightforward, front-end-heavy compensation package drew raves, Freedom 55’s incentives-based compensation model was met with frustration. Says a Freedom 55 advisor in Ontario: “I don’t think that there should be rewards; it should be straight pay.”

A Freedom 55 advisor in B.C. adds that the firm’s rewards and recognition program is tilted in favour of a small segment of its 3,100-strong advisor force: “I feel ignored. They focus too much on big books and never look at the middle guys.”

But no group of advisors were as dissatisfied with their firm’s compensation as those with Guelph, Ont.-based Co-operators Group Ltd., who repudiated their firm’s compensation structure by scoring it a survey-worst 6.7 — down by 0.4 of a point from last year’s 7.1 rating, which was also the lowest rating in that survey. What’s more, they rated compensation at a 9.3 in importance, a whopping 2.6 points greater than their firm’s performance.

@page_break@Although the percentage of Co-operators’ advisors’ income derived from first-year commissions is the lowest of all firms, at 25.1%, the focus point of their dissatisfaction wasn’t the commission distribution but a series of unpopular bonus rollbacks that began in June 2008 and are set to continue into 2010.

In last year’s Report Card, Jim Wingrove, Co-operators’ vice president of agency and sales support, said the firm was going to drop the maximum number of bonuses advisors can receive to three from five. This year, Wingrove says, he recognizes that “some agents aren’t happy with some of the changes we made to our compensation plan last year, but we still have what we believe to be, and what the industry has told us is, the most competitive plan.”

Advisors are certainly not convinced. “Clearly, the new compensation package is going to have a major impact,” says a Co-operators advisor in B.C. “My belief is that there will be major turnover at the agency level. Many senior agents will see it as the time to cash out.”

Furthermore, how advisors feel about their firms’ compensation clearly correlates with how they rate their firm overall — at least, for those who ply their trade at the dedicated sales agencies. For instance, RBC Life and Co-operators had the best and worst overall ratings by advisors, at 8.5 and 7.8, respectively, among non-MGA firms.

However, that correlation didn’t hold among the MGAs. In fact, the highest-rated firm in the Report Card, PPI, was tied for the lowest compensation rating, 7.9, among the four MGAs. But PPI advisors rated the importance of compensation at only 7.5 — a full point lower than the next-lowest firm. That’s because PPI advisors place a higher premium on more qualitative criteria, such as support services.

“They offer a hell of a lot more than compensation,” says a PPI advisor in Alberta. “I’ve had a lot of guys waltz around the table, promising me [greater payouts on term life products], but they’re paper shufflers. PPI is not just another MGA.”

PPI’s chairman and CEO, Jim Burton, says that the firm’s compensation structure is calibrated so that advisors sacrifice short-term overrides in favour of long-term gains: “The issue isn’t whether your override is X or X plus 10%; the issue is: how much revenue do you earn? We believe our agents earn more revenue per client by quite a significant margin.” IE