The results of this year’s Brokerage Report Card reveal that financial advisors’ satisfaction with their pay is inching higher across the brokerage channel.
On average, advisors rated their firms’ efforts in the “firm’s total compensation” category higher by 0.2 of a point, to 8.4 from 8.2 in 2010. More telling is that four firms — Toronto-based Macquarie Private Wealth Inc. , Vancouver-based Odlum Brown Ltd., Edward Jones‘ Mississauga, Ont.-based Canadian division and Toronto-based TD Waterhouse Private Investment Advice — saw their ratings in the category increase by half a point or more over the past year.
Calgary-based Leede Financial Markets Inc. , claimed the top rating, with a 9.5. A big reason for Leede advisors’ satisfaction with their compensation is that a 60% payout level was added for those who earn $600,000 or more; this is on top of Leede’s base payout of 50%, paid regardless of the advisor’s production level.
In fact, a Leede advisor in Brit-ish Columbia says the 50% payout is what attracted him and a colleague to the firm from a competitor in 2003. Along with the yearend dividend from the share-ownership program, says the advisor, “It was a huge cash cow for both of us.” (This advisor gave Leede a 9.0 rating in the category.)
Says Robert Harrison, Leede’s president and CEO in Vancouver, of the firm’s pay scale: “I came from a firm with a grid system … but, of course, this is a cyclical business, so a broker that does poorly for a few quarters will all of a sudden do very well [in subsequent quarters]. So, we keep it constant as advisors’ mortgage payments, hydro bills and the rest of it don’t change quarter-by-quarter, either.”
Next in line was Macquarie, which saw its rating in the category increase to 9.3 this year from 8.8 in 2010. One explanation for the higher rating, suggests Earl Evans, the firm’s CEO and head, is that greater investment-banking activity has widened the potential revenue stream for advisors. He adds that the firm participated in about 100 deals last year, up from about a dozen the year prior.
“Our product offering and the service offering to advisors is now enabling them to deliver a lot more to their clients,” says Evans. “This [has had] a direct result in their remuneration increasing dramatically, I suspect, and I think that would account for the increase.”
Another explanation, offered by a Macquarie advisor in Ontario who rated the firm a perfect 10.0 in the category, is that the parent firm offered a retention bonus when it acquired Blackmont Capital Inc.’s retail brokerage operations from Toronto-based CI Financial Corp.: “They acknowledged the amount of work that had to be done because of the transition.”
Meanwhile, advisors with Odlum Brown rated their firm at 8.9 this year vs 8.4 in 2010 because their grid wasn’t altered to the downside — as it was at some other firms — and because of the firm’s ownership structure.
“We’re privately owned, so we own shares [directly in the firm],” says an Odlum Brown advisor in B.C. “We have more control over the decisions that are made.”
Says Debra Hewson, Odlum Brown’s president and CEO: “Nothing changed during the recession. I know a lot of dealers did scale back compensation, but we were fortunate that we weren’t in a position where we needed to because, philosophically, we didn’t think it was the right thing to do.”
For similar reasons, TD Waterhouse advisors rated their firm higher by half a point vs 2010, at 7.6 this year vs 7.1.
Mike Reilly, TD Waterhouse’s president and national sales manager, concedes that while small changes at the bottom end of the grid were introduced, the brokerage generally maintained its course. “Not only did we make almost no changes to our grid over the past two or three years, we [are adding] a layer of recognition [for advisors],” says Reilly, referring to the new Executive Club to be introduced in 2012. That program offers a conference and other benefits to advisors with more than $1 million in production.
Despite the improvements in the compensation category, many advisors still complained about adjustments — especially to the lower end of payout grids. Some changes had a couple of senior advisors with Toronto-based BMO Nesbitt Burns Inc. defending their lower-producing peers. “Most banks look at advisors like sheep — they want to shave as close to the skin as possible, year after year, without nicking the skin and causing a bloody mess,” says a Nesbitt advisor in Ontario. “They’ve made changes to the grid, and it’s really pinching the lower producers who make $300,000 to $400,000 in commissions.”
Richard Mills co-head of Nesbitt’s private client division, says the adjustments to the payout system reflect the firm’s aim of rewarding advisors who are bringing in new client assets.
On the same theme, Toronto-based Richardson GMP Ltd. ‘s rating of 9.0 this year vs 9.4 in 2010 is noteworthy, both because it declined and because the firm no longer has the top rating in the category.
The reason? Andrew Marsh, Richardson GMP’s CEO, confirms that the firm has cut payouts by 20% for those offices bringing in less than $350,000 in revenue — a measure that applies to both single producers and teams. The change is a result of the merger in late 2009 between Richardson Partners Financial Ltd. and GMP Private Client LP, Marsh says. Several changes were made to the entire system, including to the grid, which now rewards advisors and teams that perform better.
The decision helped the firm “shed some underperforming advisors,” Marsh adds, noting that many remaining advisors, who are also equity owners in the firm, are thankful for the change.
Nevertheless, some things never change — and, every year, advisors rate the total compensation category’s importance much higher than the rating they give their firms. This year, the difference was a stark 0.7 of a point.
An advisor in Saskatchewan with Toronto-based RBC Dominion Securities Inc. sums up the discrepancy best: “Are you kidding? I’m a broker. I’m always going to want more money.” IE