Advisors’ wallets get a little lighter

“When the economy slows,” says an Edward Jones advisor in Alberta, “so does our compensation.”

Even so, some advisors are feeling it more acutely than others. Some of the bank-owned firms have re-engineered their pay grids or production levels, leaving unhappy advisors in their wake.

“Given the times we’re in,” says an advisor with TD Waterhouse Private Investment Advice in Ontario, “the compensation deters me from succeeding.”

But there is more to compensation than money, and it is the extras — such as equity ownership (see page C10) — that win kudos from advisors. In fact, the advisors who rate their firms highly in the category refer to their firms’ strong compensation “packages,” making Toronto-based GMP Private Client LP Toronto-based Richardson Partners Financial Ltd. and Vancouver-based Leede Financial Markets Inc. the top-rated firms in the category. They even have advisors joining them for that reason alone.

“I wasn’t looking to move firms until I heard about GMP,” says a GMP advisor in the West, “and it’s fulfilled all my expectations.”

Adds a Richardson Partners advisor in Ontario: “It is basically the reason why I came to this firm.”

Despite the market conditions, GMP saw its compensation score increase slightly, by 0.3 of a point to 9.7. Its compensation grid is competitive, says GMP CEO James Werry, and offers advisors an average payout of 50%. But, he points out, it’s the ownership opportunities that draw advisors to the firm.

“The most significant benefit,” Werry says, “is the reward of being an owner.”

When an advisor first joins GMP, he or she is offered an equity stake based on the size of the business he or she is bringing in. Over time, the program allows the advisor the opportunity to gain more equity in GMP as his or her business grows.

“Because an advisor owns a large portion of the company,” Werry adds, “it creates a culture of ownership — and that’s powerful.”

GMP’s reported earnings per advisory team is approximately $90 million, down from a peak of $125 million — the result of the recent market decline.

“It’s tough for clients, advisors and firms,” Werry says. “We are probably faring better than most. And that boils down to the experience of our advisors and that we dodged most of the bullets.

“Our payout is competitive,” he adds. “But it’s also at a level that can generate a very solid return for the company.”

Advisors at the bank-owned firms were less effusive, with all six firms underperforming their advisors’ expectations. Advisors at Toronto-based TD Waterhouse rated compensation an 8.9 in importance but only a 7.0 in performance, with complaints of grid cuts and lack of recognition.

“They keep cutting the grid,” says a TD Waterhouse advisor in Ontario. “Depending on the level you’re at, your pay and rewards will be cut significantly more than those above you.”

Like the other bank-owned firms, TD Waterhouse works off a grid that is based on ticket size and production, says Mike Reilly, president and national sales manager of TD Waterhouse.

The firm’s average payout is 45%; a production-level percentage is added to the normal grid, for which an advisor will receive restricted-share units. Although there were no structural or grid reductions this year, the production-level cutoff changed. Advisors may see this as a grid cut, says Reilly, but it is not.

At the end of 2007, TD Water-house told its advisors that, as of November 2008, those whose gross revenue was less than $325,000 would fall into the flat 20% payout bracket; the original cutoff was $300,000.

“We decided to pre-announce the changes,” Reilly says, “so that advisors who were floating around the $300,000-$325,000 margin would have a full year to increase production if they wanted. As well, we wanted to make sure that no one was surprised by these changes.”

Even with fair warning, advisors do not take well to such changes. Montreal-based National Bank Financial Ltd. took similar measures when it was preparing to make changes to its compensation package. The announcement was made in May 2008, three months ahead of the Aug. 1 implementation date and before the market started its turn for the worse. The changes included a transition bonus for qualifying advisors to help them convert to the new structure.

@page_break@But these changes left most advisors grumbling, resulting in a 0.6-point drop in NBF’s total compensation score this year, to 7.5 from 8.1 in 2008.

Says an NBF advisor in Quebec: “The firm just revised commissions, and I don’t appreciate the deduction in my salary for the same amount of work.”

Adds a colleague in Ontario: “They cut the grid this year — and I felt it.”

The changes were made mostly to give advisors an incentive to avoid smaller trade transactions, says Gordon Gibson, NBF’s senior vice president and managing director. The changes resulted in the overall payout dropping to 53% from 55%.

“We basically made some mi-nor tweaks,” he says, “reducing the payout on trades of less than $200, and increasing it on trades of more than that amount. The net overall result is approximately a 2% change.”

Gibson is quick to point out that the changes were not made in correlation to what has happened in the markets. The firm had not changed its compensation model in more than 10 years and, after reviewing a number of competitors’ compensation models, decided it was time.

“It is relative in this business that you need to keep your grid attuned to the current economy,” says Gibson. “You can do that either with small changes every year or have one big bang once in a while.”

NBF realizes that this type of change isn’t an easy one for advisors and paid out a total of $42 million in transition bonuses. Says Gibson: “We wanted to make it easier for them to adjust to the new grid.” IE