Compensation plans need work

The cause for this is somewhat varied. Some advisors surveyed for this year’s Report Card say their firms don’t give enough support regarding the ever-increasing operational costs. Other advisors say that reward and bonus targets are set too high to be achievable.

“The targets and grids are going the wrong way,” says an advisor in Ontario with Toronto-based TD Waterhouse Private Investment Advice. “They are outpacing what we can do.”

Many advisors simply feel that their firms do not offer high enough payout levels. Says an advisor in Ontario with Toronto-based BMO Nesbitt Burns Inc.: “I give [the firm] far too much of my money.”

Despite the complaints, many advisors reported faring better last year than they had in the recent past. In fact, about 32.5% of advisors reported receiving compensation of $500,000 or more in 2011, up by four percentage points from 2010. And only 8.8% of advisors reported receiving compensation of less than $100,000 in 2011, vs 10.2% the year prior.

Still, the 2011 average compensation figures suggest that advisors’ pay hasn’t quite yet returned to pre-recessionary levels; in the 2008 Brokerage Report Card, 42.1% of advisors reported earning $500,000 or more in the previous year.

In the years since the global financial crisis, most firms have made adjustments to their payout grids or changed their compensation structures overall. In some cases, compensation, including reward and bonus programs, has been refocused to give greater rewards to advisors who generate higher revenue or bring in new high net-worth clients.

Advisor attitudes regarding their compensation structures hasn’t shifted significantly from last year’s survey, although there was a slightly downward trend in performance scores. Seven of the 13 firms in the survey saw their ratings drift lower; two received the same score as they did last year; and only four saw their scores move higher.

For the second year in a row, Leede Financial Markets Inc., the regional independent brokerage based in Calgary, booked the highest performance score – at 9.5, unchanged from last year.

Leede advisors praised the firm’s compensation structure as being both easy to understand and fair. All Leede advisors start the fiscal year at a 50% payout, which moves up to 55% – retroactive to the beginning of the fiscal year – when the advisor hits revenue of more than $400,000. At $600,000, the payout rises to 60% – again, retroactive to the beginning of the fiscal year. There also are reward programs, opportunities to acquire shares in the firm and profit-sharing.

“I think it’s as good as it can be in the industry,” says a Leede advisor in British Columbia.

Advisors with Toronto-based boutique brokerage Richardson GMP Ltd. also continued to rate their firm highly in the total compensation category – at 9.3 this year, up by 0.3 of a point from last year.

The firm recently added a growth bonus that sees advisors who add $15 million-$20 million in net new assets under management earn up to an additional 1.5% on top of their regular payout. Richardson GMP also offers its advisors equity ownership in the firm.

“Advisor ownership is completely connected to the level of revenue they generate for the firm,” says Andrew Marsh, Richardson GMP’s CEO. “Our larger-revenue advisors own more of a piece of the firm.”

Advisors with Toronto-based Raymond James Ltd. gave their firm a rating of 8.9 in the total compensation category, up by 0.4 from last year – the largest increase in this category in this year’s Report Card. Although the firm made no changes to its pay structure over the past year, advisors are impressed with what they perceive to be a generous compensation regime.

“Compared with other firms I’ve worked at,” says a Raymond James advisor in Alberta, “it’s amazing.”

Meanwhile, advisors with Mississauga, Ont.-based Edward Jones gave their firm a rating of 8.2 in the category, down by half a point from last year – the biggest drop in this category in the year’s Report Card.

Some Edward Jones advisors complained that the firm has downloaded too many costs, which has eaten into overall compensation. Other advisors thought that the firm has not done an adequate job of supporting newer advisors financially as they work to establish themselves.

“You are cut off too early [from corporate support],” says an Edward Jones advisor in Ontario, “especially before commissions start to rise.”

However, some of Edward Jones’ advisors praised the firm’s five-component compensation structure, in which advisors can earn commissions, a bonus, profit-sharing, trips or other rewards, and a pension. Payouts at the firm range from 40% to 60%, depending on advisor performance.

“We have outstanding opportunities to grow,” says an Edward Jones advisor in Ontario, “and big incentives to perform.”

The firm’s leadership says that – unlike at most brokerages – they make reward trips available to less experienced advisors by setting lower targets for them. Says Craig Hayman, principal, recruiting and development: “[All advisors] have the opportunity to earn those trips if they do a good job.”

Among the bank-owned brokerages, Toronto-based CIBC Wood Gundy saw the largest rating jump – to 8.0 from 7.7 last year. Many Wood Gundy advisors praised the firm’s compensation regime, saying they liked its basket of benefits, bonuses, stock options and support systems – in addition to its competitive payout.

“It’s a great package overall,” says a Wood Gundy advisor in Ontario.

Some of the firm’s advisors, however, took issue with the compensation structure, saying that junior advisors receive payouts that are too low in comparison to their peers at other firms and don’t have access to things such as equity participation or revenue-sharing.

“If advisors are on a team,” says a Wood Gundy advisor in Western Canada, “revenue-sharing should be offered to all of them, not just the senior advisor.”

Wood Gundy’s leadership says that the investment dealer’s compensation program – including payout, rewards and other benefits – is competitive with its bank-owned peers. And although the firm had not made any changes to its grid last year, it recently reintroduced a reward trip in lieu of a cash incentive that is linked to its President’s Council of high-producing advisors.

Says Monique Gravel, managing director and head of Wood Gundy: “We think the cultural support [for the advisors] and the fact that they get to meet with their colleagues is very beneficial.”

Three bank-owned brokerages received the same, category-low rating of 7.2 for compensation: Nesbitt, TD Waterhouse and Toronto-based ScotiaMcLeod Inc. Although complaints from advisors at these firms varied, a common theme was that current pay grids have made it harder for advisors – especially the lower-producing ones – to achieve targets.

Says a ScotiaMcLeod advisor in Atlantic Canada: “They’ve decreased our payout and have made targets impossible to reach for any advisor.”

ScotiaMcLeod’s leadership says the majority of its advisors like the firm’s compensation structure, which offers incentives for bringing in new business, as well as the support they receive from the firm for bringing in new clients and AUM.

“The whole focus on getting advisors back on growth,” says Hamish Angus, managing director and head of ScotiaMcLeod, “and, really, having a culture of growth – has reinvigorated our advisors.”

© 2012 Investment Executive. All rights reserved.