Equity in the firm proves the best reward: Includes chart

That comes as no surprise to this year’s top-scoring investment dealers — Richardson Partners Financial Ltd. and Wellington West Capital Inc. — both of which count equity ownership as a crucial component of their success.

“Equity creates a unique partnership culture in which advisors and managers are working together toward common goals,” says Sue Dabarno, Toronto-based president of Winnipeg-based Richardson.

The strategy appears to be working: its advisors gave the firm an average score of 9.2 for total compensation and couldn’t say enough about the advantages of equity.

“We’re all owners, and it’s almost like a family atmosphere here,” says one Richardson advisor in Alberta. “We have the same purpose and we’re all on the same page.”

Equity is also winning over advisors at Winnipeg-based Wellington West. “The best thing about ownership is that everyone is pulling together and going in the same direction,” says a Western-based advisor. “If you have a problem at a bank-owned firm, you can only bitch about it. But here, if there’s a problem, you can change it.”

Wellington West CEO and chairman Charlie Spiring is well aware of equity’s allure. “We call it our ‘internal cocaine’ — advisors get addicted to it because it has very nice returns,” he says.

And Spiring’s advisors are clearly hooked, giving the firm a category-high score of 9.4 for total compensation.

Both Dabarno and Spiring tout equity ownership as a major recruitment perk of their firms. “It offers advisors a significant opportunity to create wealth,” says Dabarno, whose firm is looking to grow its 58-advisor workforce to 150 advisor teams, who will collectively own up to 30% of the firm. Incoming advisors are awarded equity, without cost, based on their revenue contribution to the firm.

“In our opinion, that’s the best measure of value of business,” Dabarno says, adding that equity takes the place of other reward programs. “We don’t believe in sales campaigns or high-end trips.”

And those advisors who join Richardson benefit sooner rather than later. “The earlier you get in the door, the more opportunity you have to build equity,” Dabarno says. “Advisors who joined us in the early stages of the business have put a lot of work into building the platform.”

She does stress, however, that equity isn’t meant to top up the grid. “We don’t reduce our payouts because we offer equity.” (The Richardson grid consists of two “buckets”; the advisor’s share of commissions depends on what bucket the ticket falls into. There is also a premium for priority products.)

Incoming advisors at Wellington West also rack up equity from the outset, with the firm’s 92 advisors owning a whopping 90% of the firm. “Our ideal broker is someone who’s doing a million dollars, and we’ll give him or her a stock allocation of $400,000-$500,000,” says Spiring.”We want advisors to come here, get a whole bunch of Wellington West stock and develop their wealth over the long term.”

Equity takes the place of retention bonuses — what some advisors refer to as “bribes,” says Spiring — but it doesn’t come at the cost of a reduced payout. “Our grids are above the industry norm,” he adds.

The firm pays 60% on fee-based, mutual fund and insurance business, and 55% on transactional business.

Ownership’s trickle-down effect creates a host of positive outcomes within a firm. Aside from fostering a sense of team and helping advisors build wealth, Spiring credits equity with reducing compliance headaches. “Because we are all partners here, we’re a little different than the big shops who have to work to the lowest common denominator,” he says. “We’re successful in not allowing rogues into our firm, so we don’t have as many of those silly compliance rules.”

Equity also influences creativity, client experience and corporate culture. “Ownership leads to best practices,” says a Richardson advisor in Alberta. “You’re helping to grow the business, so everyone is very open to ideas. And the high morale leads to the best possible client experience.”

A Richardson advisor in Eastern Canada says equity helps erase the dog-eat-dog mentality of many brokerages: “If I do well, my colleague does well, and then we all do well.”

@page_break@Even though equity seems to be a win/win situation for all, few firms offer advisors a significant piece of the pie. Aside from Wellington West and Richardson Partners, equity is a much smaller (or non-existent) component of compensation at many other investment dealers — much to the disappointment of advisors.

BMO Nesbitt Burns Inc. and CIBC Wood Gundy offer stock in the parent banks as part of compensation. “We see the need to help our advisors achieve long-term wealth creation for themselves and their families,” says Richard Mills, national sales manager for Nesbitt Burns in Toronto. The firm’s advisors gave compensation a grade of 7.2, a 1.3-point improvement over 2005’s score of 5.9.

Wood Gundy’s compensation score also improved this year, moving up to 6.7 from 6.0 in 2005. The firm offers equity in the bank to advisors who make $450,000 or more in revenue. “It’s a reward that’s in line with the success of the entire organization,” says Tom Monahan, head of Wood Gundy in Toronto.

Advisors at RBC Dominion Securities Inc. and ScotiaMcLeod Inc. are also granted parent bank stock through their firm’s partnership plans. “Our compensation is standard for the industry,” says a DS broker in Ontario. His colleagues are similarly blasé about compensation, awarding DS with a score of 7.4 in the category — identical to last year.

ScotiaMcLeod advisors are rewarded annually on the firm’s performance, and they can take this reward in cash or put it back into Bank of Nova Scotia stock, says Hamish Angus, head of the firm’s full-service brokerage. The firm’s Performance Partnership Plan was introduced in 2005, when 600 advisors received more than $15 million in cash and stock at yearend.

Angus says his brokerage’s advisory board was in favour of a bonus based on corporate performance, but at least one advisor disagrees. “I just don’t like that compensation is tied to the firm’s results,” says the Ontario ScotiaMcLeod advisor. “What I want to see is some degree of ownership linked to the firm, but that’s not going to happen.”

Overall, ScotiaMcLeod brokers rated compensation at 7.5, more than a full point increase over 2005.

Meanwhile, equity in the form of deferred stock options from their parent companies is a compensation perk for producers at National Bank Financial Ltd., Raymond James Ltd. and Blackmont Capital Inc. However, one Raymond James advisor in the West says there’s room for improvement: “The firm could be doing more in terms of building equity with us.”

And that’s exactly what’s being done at Blackmont, at which incoming advisors are able to take a significant portion of their transition payment in parent Rockwater Capital Corp. stock.

These firms received solid scores for compensation — 8.0 for National Bank Financial, 8.9 for Raymond James and 7.6 for Blackmont.

When equity isn’t an option, several firms reward advisors with all-expenses-paid vacations. France’s Provence region is this year’s destination of choice for top-grossing Canaccord Capital Inc. and TD Waterhouse Private Investment Advice brokers. Canaccord has also launched a bonus structure based on commissions, which one Ontario broker describes as “a little wimpy.” The firm received a score of 8.7 for total compensation, a half-point drop from 2005’s score of 9.2.

In addition to the week in Provence, TD Bank Financial Group runs “star trips” for outstanding performers from all areas of its business, as well as integrated trips for investment advisors and wealth partners.

“This really fosters an incredible amount of partnership,” says Mike Reilly, TD Waterhouse’s president and national sales manager in Toronto. His advisors rated the firm’s compensation at 6.4, a 0.4-point increase from 2005’s score of 6.0.

Travel is also a reward at Edward Jones — the firm’s top brokers earn trips to the Caribbean, Hawaii or China. “Two vacations a year are one of the best aspects of this firm,” says an Edward Jones advisor in Saskatchewan.

Strong performance is also rewarded with limited partnerships in the firm (which have averaged a 20% return on investment over the past decade), a branch office bonus (which can increase income by 30%-40%) and a deferred profit-sharing plan.

This compensation scheme seems to be growing on Edward Jones advisors, who gave their firm a grade of 8.4 in the category, a 0.8-point improvement over 2005. IE