A dichotomy in advisors’ compensation

In particular, the percentage of advisors earning more than $100,000 a year has risen to 68% from 66.7% last year. Yet, advisors gave their firms an overall average rating of 8.2 in the “firm’s/MGA’s total compensation” category, down slightly from 8.3 last year.

More notable is that the overall average importance rating that advisors bestowed on the category rose to 9.1 from 8.8 year-over-year, making the category tied for third (with “firm’s/MGA’s stability”) in importance for advisors in this year’s Report Card.

As a result, the satisfaction gap, the difference between the overall average performance and importance ratings, in the total compensation category rose to 0.9 this year vs 0.5 in 2011.

A major reason for this wider gap is the increased dissatisfaction with compensation among some advisors with the dedicated sales agencies, such as London, Ont.-based Freedom 55 Financial and Mississauga, Ont.-based RBC Life Insurance Co. These two firms had both the lowest ratings in the category, at 7.2 and 7.1, respectively, and the two largest satisfaction gaps, at 1.6 and 1.8, respectively.

Advisors with Freedom 55 and RBC Life are particularly displeased that greater incentives have been placed on attracting new business rather than servicing existing clientele. Says a Freedom 55 advisor in British Columbia: “During times of volatility, [clients] have the power to switch to another provider. We should be doing more to make sure they’re happy and not trying to have advisors become product pushers because [selling new products] pays more.”

RBC Life advisors are mostly disappointed with the firm’s new production bonus payout grid, which calculates bonuses based on average production over three months of sales. Previously, the grid had allocated bonuses based on each month of production.

Some RBC Life advisors feel they were better rewarded under the previous compensation model for production levels that can vary drastically from month to month.

“RBC Life changed the bonus structure so it hurts advisors like me,” says an RBC Life advisor in B.C. “[The grid] was changed to reward high producers. I saw a significant drop in my earnings; I’m working harder to get the same pay.”

RBC Life is continuing to make adjustments to its compensation model to compensate the advisors who reach their sales targets on a more consistent basis fairly, says Ernie Murdoch, RBC Life’s senior vice president of career sales: “The change makes it easier for advisors that do perform consistently to receive 100% of the bonuses they are entitled to, even if there are irregularities in their sales levels month-to-month.”

Although many advisors with dedicated sales agencies are dissatisfied, it’s worth noting that advisors with three of the independent sales agencies – Calgary-based PPI Solutions Inc., Mississauga, Ont.-based IDC Worldsource Insurance Network Inc. (IDC WIN) and Winnipeg-based Daystar Financial Group Inc. – gave their firms the highest ratings in the compensation category.

Advisors at these firms are happy with their compensation, which they think is fair. These firms also tend to have a more flexible compensation structure, in which payouts aren’t locked into a grid but are negotiated based on loyalty to a managing general agency (MGA) – based on the proportion of business an advisor processes with the same MGA – as well as the advisor’s level of production.

At PPI Solutions, advisors receive 100% of their first-year commissions; they also can get an override of up to a 190% based on their experience and how much business they underwrite.

IDC WIN has a similar payout structure, in that all first-year commissions are paid directly to the advisor. As for bonus compensation, it’s calculated based on both a grid and business volume. IDC WIN also rewards its advisors for servicing existing contracts, which keeps the advisors happy.

Says an IDC WIN advisor in Ontario: “The payouts are very high, especially for renewals, which puts a strong emphasis on creating strong client relationships.”

IDC WIN has kept its compensation competitive because advisors who do business through the MGA are independent and have the choice to do business anywhere, says Ron Madzia, the firm’s president: “Advisors are responsible for building their own practice. And because of that, we compensate them fairly.”

At Daystar, however, advisors are happy with smaller commissions in exchange for a full suite of support services. These include everything from relationship managers who provide advisors with individual advice on how to build their businesses to tax and estate planning specialists who help advisors create specialized strategies for high net-worth and middle-market clients.

This trade-off between compensation and support services is intentional, says Paul Isaacson, Daystar’s president: “Certainly, there are [MGAs] that pay more than we do. We know that. And that’s fine because we add a lot of value in other ways that will grow [an advisor’s] revenue.”

A little extra

When it comes to non-monetary compensation, advisors are happiest with firms that have multi-tiered rewards and recognition programs in which all levels of advisors get recognized for the work they do.

As an advisor in Ontario with Mississauga, Ont.-based IDC Worldsource Insurance Network Inc. (IDC WIN) puts it: “The [rewards] are structured in a way that everybody gets something. They’re accessible at all levels of production.”

This year’s survey marks the first time advisors surveyed for the Insurance Advisors’ Report Card were asked to rate their firm’s rewards and recognition program separately; previously, the topic was included as part of the “firm’s/MGA’s total compensation” category. The miniscule gap of 0.2 of a point between the overall performance rating (7.8) and the overall importance rating (8.0) reflects that insurance firms are doing a pretty good job of fulfilling advisors’ needs.

A closer look reveals that Calgary-based PPI Solutions Inc., IDC WIN and Vaughan, Ont.-based World Financial Group Insurance Agency of Canada Inc. garnered the most praise from their advisors.

Advisors with PPI Solutions were particularly enthused with that firm’s Advantage program, which provides rewards in the form of reimbursements for insurance-sector tools and business support to help advisors.

Says Jim Virtue, president and CEO of PPI Solutions: “The focus of the Advantage program is really on helping [advisors] grow their business.”

As for IDC WIN, it not only hosts a president’s conference for its top producers, it also holds a variety of smaller events such as charity barbecues that foster team spirit. Says Ron Madzia, IDC WIN’s president: “It’s important for [advisors] to be recognized [specifically] in the [managing general agency] environment, in which a lot advisors work in small, individual shops.”

© 2012 Investment Executive. All rights reserved.