Book growth and pay not aligned

This shortfall is evident when looking at the performance and importance ratings that advisors bestowed on their firms in this category. On average, advisors gave their firms an 8.1 performance rating while giving the category an average importance rating of 8.8 – leaving a hefty “satisfaction gap” of 0.7 of a point. In general, such gaps mean that advisors’ expectations are not being met – and that firms have work to do in the category.

“You can always improve on compensation,” says an advisor in Ontario with Toronto-based Royal Bank of Canada (RBC).

Adds an advisor in the same province with Toronto-based BMO Nesbitt Burns Inc.: “Nobody works for free, so [compensation is] important.”

Over the past year, the average advisor’s book of business has grown by 8%, to $54.1 million from $50.1 million last year. This is an encouraging sign, in that it represents the greatest annual increase in average book size in the past five years.

However, it appears that advisors have not seen their paycheques keep pace. In fact, a greater proportion of advisors reported earning less than $100,000 in 2012 compared with 2011. Specifically, 30.9% of advisors across all channels said they earned less than $100,000 in the previous year, up from 28.8% in last year’s survey.

Meanwhile, the proportion of advisors earning higher levels of compensation has declined. Among those advisors surveyed, 52.4% said they earned between $100,000 and $500,000, down from 53.5% year-over-year. In addition, 11.5% earned between $500,000 and $1 million, down from 12%; and 5.1% earned more than $1 million, down from 5.7%.

Not surprising, many advisors across the entire financial services industry expressed frustration with this trend.

“The problem is with both salary and bonuses,” says an advisor in Ontario with Toronto-based Canadian Imperial Bank of Commerce (CIBC). “We’re not compensated in line with the job that we do. I get a base salary, but I don’t get a big payout for the business I grow. I want more.”

Many other advisors at banks and credit unions were similarly displeased with their compensation this year. Firms in that channel earned the lowest average rating in the compensation category, at 7.5, down from 8.0 last year. Furthermore, four firms in the channel saw their ratings drop by half a point or more.

Much of the dissatisfaction among advisors at the deposit-taking institutions was related to changes to compensation packages that didn’t sit well with those advisors, including adjustments to the way firms calculate bonuses. Much like the aforementioned CIBC advisor, other advisors suggested the banks’ and credit unions’ bonus structures simply do not reward them sufficiently for growing their businesses.

“Both bonuses and salaries are a problem,” says a CIBC advisor on the Prairies. “They keep changing every year. The [bank] gives everyone the same target, regardless of their asset levels. And instead of seeing our compensation go up, it goes down.”

Adds an advisor in Ontario with St. Catharines, Ont.-based Meridian Credit Union: “The structure is focused on net sales, and it is hard for me to achieve that by building my book of business. My book is big because I have established clients, but my focus is on retention because I don’t have time to get more clients.”

In some cases, advisors said, they’re frustrated by the sheer volume of changes they face.

“They change the [compensation] program every year,” says an advisor in Ontario with RBC. “It’s a moving target.”

In contrast, the firms that outperformed in the compensation category have structured their pay programs in such a way that their advisors felt that they’re fairly rewarded for their hard work.

“It’s very fair,” says an advisor in Ontario with Mississauga, Ont.-based IDC Worldsource Insurance Network Inc., “and they’re flexible in terms of increases to commissions if it’s warranted. They’re not stingy.”

Advisors with these top-rated firms also commended their firms for their bonus and incentives programs.

“There’s performance equity participation, in which you earn more equity shares [in the firm] based on revenue,” says an advisor in Alberta with Toronto-based Richardson GMP Ltd. “We’re big fans of this. And there’s also a new asset bonus, for when you bring in new assets.”

Adds an advisor in British Columbia with Vancouver-based Odlum Brown Ltd.: “It’s been a rough time for the industry, so we were getting bonuses while competing firms were cutting back on their advisors.”

Other firms appear to be learning from the success of this formula. In fact, some of the firms that saw their compensation ratings increase by half a point or more over the past year have taken steps to improve their bonus programs.

Toronto-based ScotiaMcLeod Inc., for instance, has stepped up its emphasis on rewarding advisors who grow their businesses. In turn, ScotiaMcLeod advisors appear to be pleased with the incentives in place, having given their firm an 8.1 rating in compensation, up from 7.2 in 2012.

“The growth bonus program is awesome,” says a ScotiaMcLeod advisor in Ontario, “and it has been expanded to include new asset sharing.”

Several insurance firms also stood out for having considerably improved compensation ratings in this year’s Report Card series, with advisors at these firms having indicated that they feel valued for their work.

For instance, Toronto-based World Financial Group Insurance Agency of Canada Inc. (WFG) saw its compensation rating jump to 8.7 this year from 8.1 in 2012, with many WFG advisors lauding the firm’s rewards and recognition program.

“Every time you achieve a milestone, you get recognized – and it feels good,” says a WFG advisor in Ontario. “You do get beaten up in the field, that’s for sure. But to come back and get recognized, it feels really good.

© 2013 Investment Executive. All rights reserved.