The score for “total compensation” is up across the board in the 2007 Brokerage Report Card. And the four-year-old Canadian bull market has probably contributed to a general sense of euphoria across the industry as bubbly markets have directly affected advisors’ pocketbooks in the form of bonuses — specifically, equity in firms that have seen a rise in revenue over the past few years.
Overall, the average score in the category increased by 0.4 — to 8.3 from 7.9 in 2006. And looking at the highest-scoring firms, it’s possible that there is a direct relationship between compensation scores and the percentage of a firm’s advi-sors who are participating in a share ownership plan of some kind. For instance, at Winnipeg-based boutiques Wellington West Financial Inc. and Richardson Partners Financial Inc., which received the two highest performance scores in the category — 9.6 and 9.3, respectively — every advisor participates in their firms’ available equity programs.
At other firms, lower scores may belie the randomness of the survey; it’s possible young advisors who have yet to reach equity-qualifying threshold levels were the respondents.
Industry executives will often address this line in the survey by noting that the firm’s compensation is “competitive” with the rest of the industry. But some firms are more competitive than others.
To start with, share ownership comes in many forms. At privately held Wellington West and Richardson Partners, all advisors are offered equity in the firms when they’re offered jobs, but these advi-sors tend to be more experienced.
At other firms, the shares are often offered as a bonus when the advisor reaches certain annual performance levels — $400,000 in revenue, for example. That generally applies to regional firms such as Odlum Brown Ltd. or Leede Financial Inc. , both based in Vancouver, although advisors may need to reach a certain book size as well to begin receiving equity. And, at Odlum Brown, when an advisor reaches a certain age, he or she will be asked to sell back the shares so that they can be offered to younger advisors and recruits.
At Edward Jones, about a third of advisors own shares in the limited partnership, according to Gary Reamey, principal and head of the firm’s Canadian division in Mississauga, Ont. However, retiring advisors in good standing can retain their limited partnerships so long as they remain unemployed.
Generally, firms offer equity to advisors at the end of the year as part of the annual bonus for those who have been with the firm for a few years — or however long it takes to build their business to preset targets. The amount of equity depends on how the firm grows and how well the advisor has performed. The equity can be equivalent to an additional 2%-8% or more in annual compensation, depending on the advisor’s performance and the firm. At the top end, a $4-million producer at Toronto-based Blackmont Capital Inc. , for example, can take in another 10%.
At the bank-owned firms, such as Toronto-based TD Waterhouse Private Investment Advice and RBC Dominion Securities Inc. , the equity is often tied ultimately to the performance of the parent bank, which can be profitable. However, when the going is good, this is not quite the same as owning equity in a top-performing brokerage.
Still, at DS and Toronto-based ScotiaMcLeod Inc. , the higher scores these firms received are probably tied to better performance of their underlying bank stocks. As David Agnew, managing director at DS, says, the firm’s “P-point” program — which started in 1999 and builds equity annually that converts to actual Royal Bank of Canada stock after three years — has paid out $80 million to date. However, its market value is almost double today, about $150 million, based on the current price of RBC stock.
A notable exception in the bank-owned category is Montreal-based National Bank Financial Ltd. , with the highest score in the group (8.0). Instead of paying a lump-sum bonus at the end of the year, as the other bank-owned firms do, NBF delivers it in quarterly tranches. “Advisors like the quarterly bonus because it helps them save,” says Gordon Gibson, senior vice president and managing director at NBF.
Toronto-based Raymond James Ltd. runs two models. Advisors working under the firm’s umbrella are offered equity, but those running independent branches forgo the shares for higher payouts on the commission grid.
@page_break@If there is risk in tying compensation to share ownership, it is essentially a diversification argument. Today, when businesses are booming, advisors are happy to take stock. However, taking a large portion of compensation as equity represents a heavy short-term bet on the industry. If an advisor wants to leave the business soon, he or she may choose to opt out of the program and take a payout instead.
A case in point is a publicly owned firm such as Blackmont, whose shares were moving sideways before CI Financial Income Trust acquired Blackmont’s parent, Rockwater Capital Corp., in April. The parent’s shares were eventually sold at a premium, but when advisors were surveyed in January, some were uncertain that the firm was a good investment. “I don’t think they hit the mark with the shares,” says a Blackmont advisor in British Columbia. “It isn’t a motivator.”
The grid still plays a part in advisors’ satisfaction with compensation. Across the board, advisors at the bank-owned firms bemoaned their tighter grid payout — somewhere below 50%; possibly higher for non-transaction-based business.
It may be the price advisors at those firms pay for stability, but they still criticize the fuzziness and constant tinkering with grid structure. “They make it complicated and keep changing the game on us,” says a ScotiaMcLeod advisor, who may be speaking for all advisors working at bank-owned brokerages.
And TD Waterhouse — with the lowest compensation score of the bank-owned firms, at 7.1 — may be paying for a change it made to its grid more than a year ago. In the past, the firm offered a 70% payout to advisors who managed their own branches, but no longer. Even if advisors are better compensated under the new system, which includes a 50% payout along with equity in the parent bank, they still bristle at the loss of control.
Grid payouts at the national independents will vary, in the 50% range, while those operating independent shops at Raymond James or Edward Jones, for example, will see upward of 60%, with the implication that they have branch-related costs.
Ticket charges are the norm across the industry. Most firms also find some way to charge advisors for the increasing cost of technology. Monthly levies of $100-$150 are common.
At Richardson Partners, advisors are given an allowance for technology and marketing expenses, which they can allocate to the resources they choose. “We want to provide them as much flexibility as possible in customizing their business, and not supplement their payments to pay for tools that aren’t valuable to [them],” says Sue Dabarno, president of Richardson Partners in Toronto.
Annual trips for strong performers and big asset gatherers are common. Vancouver-based Canaccord Capital Inc. offers a trip to Morocco for advisors with sales of more than $1.6 million, a trip to Scottsdale, Ariz., for those reaching $1.2 million in sales, and a sales conference in Las Vegas for virtually the entire advisor base.
TD Waterhouse also offers travel-related bonuses. IE