When it comes to compensation, keeping advisors happy is a no-brainer: just show them the money. But as the three firms that received top scores for total compensation in the 2006 Planners’ Report Card demonstrate, there is more than one formula for success.
For the second year running, PFSL Investments Canada Ltd. took first place in compensation, with a score of 9.4, placing ahead of FundEx Investments Inc. and Peak Investment Services Inc. But, even though all three share excellent scores, the similarities end there.
At PFSL, each of the firm’s three streams — mutual funds, insurance and debt consolidation — have separate compensation arrangements. And, although average payout to the branches is 80% (a 5% increase went into effect at the beginning of the year), an advisor’s take depends on his or her rank.
“Some advisors override others and get a bit more of the payout,” says Jeff Dumanski, president and chief marketing officer at the Mississauga, Ont.-based firm. Generally, long-term employees who have recruited other advisors get the higher cut; these advisors tend to be responsible for additional costs, such as rent and office expenses, but the firm foots the Mutual Fund Dealers Association fees.
PFSL also has a unique ownership program in place, under which reps who have been with the firm for a decade and who have reached a certain production level qualify to own their books of business, which they can then sell to other advisors when they want out.
Even though its rating indicates most PFSL advisors are fans of the firm’s compensation plan, there are grumblings from some — probably those in the bottom ranks. “Compensation is the worst aspect of this firm,” says a PFSL advisor in Saskatchewan. Echoes a colleague in Ontario: “I’d like to see more compensation for people starting out.”
In sharp contrast to PFSL, Markham, Ont.-based FundEx’s compensation grid is straightforward. “We get a 100% payout, which is an ideal situation,” says a FundEx advisor in Ontario. The majority of the firm’s advisors — who play a flat yearly fee — feel the same way, giving the firm a second-place score of 8.7 for compensation. But other factors make the 100% commission less than perfect for some advisors, as indicated by the 0.5-point drop in this year’s score over 2005.
“The full payout was good at the beginning, but my costs have since increased by 40%,” says a FundEx advisor from the West. “The compensation works out to be average once you pay all the fees.” And some advisors are probably still smarting from an increase to the flat fee. “Our fee went up because of compliance measures, which was necessary,” says a FundEx advisor in Ontario. “But I know a lot of advisors were unhappy about it.”
At Peak, which took third place in this category, advisors’ payout depends on which of the three back-office systems they choose: RPM, Univeris or Winfund. Each requires a varying degree of work on the advisor’s behalf — the more work the advisor does, the greater the payout. “Some work is centralized and some is decentralized,” says Robert Frances, the Montreal-based firm’s president and CEO. “When the branches do more of the data entry and review work, compensation is greater. When Peak staff does some of the work, compensation is lower.” Frances estimates average payout across all three platforms is 82%, adding that the only additional costs advisors incur are MFDA fees. Peak also offers equity, but on a case-by-case basis. “It’s usually offered when we need to raise funds,” he says.
Frances describes Peak’s compensation as “the same as the industry,” and Peak advisors agree. “It’s competitive but not the highest, in relative terms,” says a Prairies advisor. Nevertheless, it seems to be working for the majority of its advisors, who gave the three-grid system a grade of 8.5.
The same can be said for Investors Group Inc. and Partners in Planning Financial Services Ltd. , which tied for fourth place with solid scores of 8.1 for compensation.
“Our compensation is a blend of cash and near-cash items,” says Kevin Regan, executive vice president of financial services at Winnipeg-based Investors Group.
Payouts at the firm range from 62%-82% for mutual funds to 50%-76% for trailers. “Near-cash” refers to credits advisors can earn toward marketing materials, benefits, education and stock in the parent company, IGM Financial Inc. Advisors pay MFDA fees, as well as for personalized marketing materials, printed client statements, a monthly software fee and other operating costs.
@page_break@At Partners in Planning, the grid favours top earners. “We pay 85% commission to branches. Inside the branch, advisors receive an average of 78%-80%, but those who own part of the firm get more,” says Michael Wolfond, the Regina-based firm’s CEO. About 100 of the firm’s 900 planners own a stake in the company, with some recruits offered equity in lieu of a signing bonus. “If we’re bringing over someone with a $100-million book, we give equity because we want this person to stay,” he says.
An 85% payout tends to be par for the course for the majority of the remaining firms surveyed in this year’s Report Card.
“On the high end, we pay 85% to the branch and they pay their own expenses,” says Chris Reynolds, president of Mississauga, Ont.-based Investment Planning Counsel. Almost half the firm’s 500 advisors own equity in IPC; as a result, advisors and managers own a total of 10% of the firm. “Equity is important because we believe in partnership,” Reynolds says.
“We have one of the best equity programs in the industry,” says an IPC advisor in Ontario. The firm also offers signing bonuses in the form of cash, equity or a combination of the two. The firm ranked fifth in compensation this year, with a score of 7.9.
On the bottom tier of the compensation category are Laurentian Financial Services, Dundee Wealth Management Inc., Manulife Securities International Ltd., Berkshire Investment Group Inc. and Assante Corp.
Laurentian advisors can choose from three compensation grids. “The first is an independent grid in which advisors pay their office costs. The second is for those who have all their costs paid,” says Steve Cole, the Toronto-based firm’s regional vice president of sales and recruiting. The third grid is for advisors with additional functions at the branch, such as management duties, who receive higher payouts on their business.
Average payout across all three grids is 72%; Laurentian advisors gave their firm a score of 7.6 for compensation, with one Ontario advisor describing the grid as “fantastic” and another calling it discriminatory. “I want them to be more universal in how they treat people,” the disgruntled rep says.
Dundee also offers reps a choice of compensation: those employed by the firm receive 50%-55% and pay no fees, while independent advisors receive 85% at the branch but cover their own costs. Advisors gave total compensation a 7.5 rating, a 0.9-point drop from 2005, and describe the grid as both “excellent” and “greedy.”
Berkshire and Manulife tied for second-last place in compensation with scores of 7.4. “Our grid isn’t the highest in the business, nor do we necessarily want it to be the highest,” says Geoffrey Charlton, executive vice president of Burlington, Ont.-based Berkshire.
At the top end, the firm offers its branches an 85% payout based on gross production and charges each advisor $195 for technology. At least one advisor is satisfied: “I love money, and they’re giving me lots of it,” says a West Coast advisor. A share option program aimed at rewarding advisors who helped build the company debuted in the fall of 2005. “We’ve had pretty much 100% participation in that,” says Charlton.
Manulife’s average payout is 76%, maxing out at 80%. Advisors pay for their overhead and MFDA fees, while the firm foots the technology bill. “We’re the same as any other fund firm,” says Rick Annaert, president and CEO of Waterloo, Ont-based Manulife. “Payout is based on the amount of production and business you’ve done with us.” Advisors also earn sales credits that can be put toward the biannual national education conference. “I’d get significantly better pay elsewhere,” gripes an advisor in Alberta.
For the second consecutive year, Toronto-based Assante is at the bottom of the compensation heap, with a 6.9 rating, identical to that of 2005. The firm’s sole grid pays an average of 82%; advisors pay one annual fee for registration, insurance and technology. IE