In terms of straight payout, it looks as if financial planners are getting a sweeter deal than brokers.
Investment Executive’s Planners’ Report Card survey of more than 400 advisors at Canada’s largest national financial-planning firms found the average payout is 72.5%. Our annual survey of the brokerage industry last month put the average broker’s compensation at just 44.1%.
But the numbers don’t reveal the entire story. While some planners get a payout upward of 70%, they don’t receive the same quality or quantity of support that many brokers get from their firms.
Brokers may forfeit close to 60% of gross commissions, but their firms pay for their offices, overhead and research. Sales assistant costs are shared, at least, and the quantity of marketing and advertising is significant. According to IE brokerage and planning report cards research, brokers also boast books almost three times larger than planners, an average of $47.5 million vs $16 million.
A Toronto financial advisor with Dundee Securities Corp. says the difference is dramatic. “I used to work for ScotiaMcLeod Inc. and RBC Dominion Securities Inc., and here we pay every dime of our office costs. We have no benefits,” he says “When I say zero, I mean nothing, negative. I pay for everything.”
Despite the less than stellar marks for marketing and advertising support from both groups, there is a direct relationship between the scores and payout.
Planners give grades of 5.8 for their firms’ marketing efforts and 4.4 for advertising, compared with brokers’ marks of 7.1 and 6.4, respectively. This relationship between marketing/advertising and payout can also be seen within individual planning firms. Advisors with Winnipeg-based Investors Group Inc. rated the firm’s marketing 7.2 and gave advertising a 6.5. The company also boasts one of the lowest payouts of 67.5%.
“The public hears reps leave Investors Group for other companies and, therefore, think badly of Investors,” says an IG planner in Atlantic Canada. “They don’t know that other companies pay more but invest less in their people.”
Primerica Financial Services Ltd. and Regal Capital Planners Ltd. also share this low compensation/high marketing balance, both with payouts of less than 68%.
Burlington, Ont.-based Berkshire Investment Group Inc.‘s approach to advertising is to offer advisors a good payout and let them decide if they want to
advertise. “If you want to do national advertising, you have to impose a tax or cut payout. Our model right now does not call for that,” says Kris Astaphan, Berkshire’s executive vice president. “If a company budgets 10¢ for advertising out of every $1 of revenue, it can do that or give that money to its advisors and let them decide what to do with it.”
Some advisors want brand recognition for their firms, but many see a lack of national advertising as an obstacle to achieving it.
Others see a low profile as part of the freedom the industry offers. “People are looking to purchase from me and deal with CMG as the dealer,” says a CMG-Worldsource Investment Services Inc. advisor in Toronto. “Looking for brand names is not that important.” Another advisor says a firm’s public image takes a back seat to the rep’s image.
A W.H. Stuart Mutuals Ltd. advisor in southwestern Ontario, says clients want a personal relationship with their financial planner, and it doesn’t matter which firm the advisor works for. Public image plays a role in a client’s choice of firms but, he claims, “Independent reps are the high-profile people in this business.”
Quality of research also plays a significant role in whether advisors receive adequate compensation.
Planners have little or no access to research, and rate it 5.8. Brokers, however, sacrifice cash for product-specific and overall market research, and rate it 7.6.
But, says the broker-turned-Dundee planner, he would rather have the money in his hands than in the hands of the firm. He adds he would have to look long and hard at a management offer to exchange a percentage of payout for support, “because at the end of the day I can spend my dollar well.”
Although planners complain about a dearth of support, few are willing to sacrifice part of their paycheques to buy it from their firms. It all goes back to the acclaimed independence of this business.
One of the reasons the Dundee planner left the bank-owned brokerage houses was its control over assets. That policy, he says, is reflected in the firm’s attitude toward its advisors. After being at DS for three months, he says, a manager came up to him and said, “We don’t care one f… about you, it’s all about the firm.”
The rep says he has no regrets at all about making the switch to financial planning.