Firms cut grids in effort to contain costs

Advisors, though, gave their firms an overall average compensation score of 8.1, identical to last year. This implies that they understand the effects of the current economic climate on their firms and, as such, aren’t passing too harsh a judgment for any of their cost-cutting moves.

However, many advisors said they do feel the stress of receiving lower pay, and they complained about the changes their firms have made in terms of compensation.

“They’ve cut back on commissions,” says an advisor in Ontario with Toronto-based DundeeWealth Inc. about his firm. “It makes it hard on the little guy.”

DundeeWealth lowered its percentage payouts at the bottom end of its grid for 2009, says Gordon Martin, senior vice president of the firm’s retail division. But to mitigate the effects of the lower payouts, DundeeWealth also introduced asset-growth incentives for advisors. If they hit those asset-growth targets, advisors at the top- and middle-range grid levels would see an increase in compensation; lower level-range advisors could match their compensation levels; and advisors at the lowest range would still see a modest decrease.

“We’re expecting that the advisors will take advantage of [the asset-growth incentives],” says John Panneton, executive vice president, distribution and investments at DundeeWealth.

Most of the other full-service dealers included in the survey also made changes to their compensation regimes this year, changes that primarily affected advisors with modest-sized books.

For example, Mississauga, Ont.-based Investment Planning Counsel decreased its percentage payout for advisors earning less than $100,000 a year. Some IPC advisors say they were feeling the bite.

“They are downloading costs and cutting back on the grid,” says an IPC advisor in British Columbia.

“We tried to resist making changes as much as possible,” says Chris Reynolds, IPC’s president. “I’m pretty sure every big firm has done something with their grid this year.”

Advisors at a number of firms say they weren’t consulted or warned about compensation changes ahead of time, and thus felt sideswiped.

“They changed our compensation [model], and they weren’t open about it until it was done,” says an advisor in Ontario with Markham, Ont.-based Worldsource Financial Management Inc.

Worldsource did make changes to its grid in July 2008, but those were signalled to the advisors well ahead of time, says Andy Mitchell, president and chief operating officer: “The change was definitely well communicated, documented and dealt with in regional and branch meetings across the country.”

Burlington, Ont.-based Manulife Securities Inc. introduced a harmonized grid last year that blended its existing grid with the one that had been covering advisors absorbed from the firm’s acquisition of Burlington, Ont.-based Berkshire-TWC Financial Group Inc. in 2007. Manulife president and CEO Rick Annaert says the harmo-nization resulted in two-thirds of the advisors being unaffected or seeing a little increase in their compensation and one-third of advisors experiencing a modest decrease.

A few firms chose to cancel conventions and trips, either rewarding star advisors with equivalent cash or forgoing rewards altogether. “It’s hard to justify to a client who just lost 30% of his or her portfolio,” says Reynolds, “that we’re going to be jetting off to Bermuda.”

But executives say they understand the pressure that advisors are under when it comes to compensation. After all, even if AUM decreases, expenses don’t drop in tandem. As such, executives say they are looking for innovative ways to reward advisors for performance.

Winnipeg-based Investors Group Inc., for example, made a number of changes that included lowering the payout, but also adjusting the grid thresholds so that advisors could move up more easily, says Kevin Regan, executive vice president of financial services. More advisors will also now be paid through the deferred compensation stream, which can be used to obtain credits applied toward education, marketing tools or access to specialists.

“There is more to being associated with Investors Group than strictly cash,” Regan says.

Montreal-based Peak Financial Group is alone among the full-service dealers in that it has not made any changes to its compensation structure. The firm pays its advi-sors based on one of four grids, depending on the type of business the advisor does, and Peak’s only reward program is based on compliance, not sales. “It’s kind of weird, but it does work,” says Robert Frances, Peak’s president and CEO.

@page_break@Executives at the mutual fund-only and independent dealers say they generally made no changes to their compensation models this past year.

Regina-based Partners in Planning Financial Services Ltd. introduced a program in 2008 —PIP Independent Elite — to reward top advisors in a number of categories, including growth in assets, focus on managed money, a clean compliance record and the acquisition of professional designations. The 13 advisors who qualified will be recognized at the firm’s annual conference in September and receive a one-time cash payout.

Calgary-based Portfolio Strategies Corp. made no changes to its grid structure, but did raise the cost of its flat-fee model.

Mississauga, Ont.-based PFSL Investments Canada Ltd. says it made no changes to compensation this past year, but did introduce new bonuses for high production, based on the business the advisor does.

PFSL operates on a unique business model, in which advisors’ compensation is based not only on selling products to clients but also a percentage of the revenue generated by the advisors they’ve recruited.

But, much like everyone else, PFSL advisors have not remained unscathed. “Sales are down, there’s no question about that,” says Jeff Dumanski, president and chief marketing officer. “[And] that translates to [advisors’] compensation.” IE