Advisors don’t like it when you take away their take-home pay; it has a way of creating dissension in the ranks.

The 400 advisors working at mutual fund distributors surveyed by Investment Executive especially don’t like it when changes are delivered by way of extra fees slipped in during the year. They seem to prefer direct changes, such as a modified pay grid or compensation structure, to being what they call “nickel-and-dimed.”

Planners say client fees and the passing down of costs are becoming problem issues in the industry.

Cost downloading is a particular sticking point with planners at Winnipeg-based Investors Group Inc., which placed ninth in the payout category with a score of 7.2.
“The compensation was an issue,” says an IG planner from Ontario. “A lot of us felt that the company was benefiting, while every possible cost was being downloaded to us.
It’s getting better now, but they still have a long way to go.”

Kevin Regan, senior vice president of marketing and consultant services at Investors Group in Winnipeg, says the company introduced changes to the grid earlier this year, increasing the payout roughly 9% on average and eliminating the differential in payouts between equity and fixed-income products.

Payout numbers reported by Investors Group planners vary dramatically compared with the numbers reported at other firms. But there is a reason for that. While planners normally earn 70% of the 5% commission paid into the dealer grid by the manufacturer, Investors Group planners directly earn 3.1%-4.1% of the amount invested by the client because the company is also the manufacturer of the funds being sold. The trailer grid is similar and it ranges from 0.25%-0.38% for deferred sales commissions and 0.6%-0.73% for no-load sales.

“We have one grid that applies to our proprietary products, as well as the products that are subadvised through us,” Regan says. “There is no difference.”

Further down in the rankings, the second-lowest rating in the payout category went to Manulife Securities International Ltd. of Kitchener-Waterloo, Ont., with an average score of 6.9. “Like all firms, it’s always trying to chisel down your commissions,” says one Ontario planner, adding payout is one of the worst aspects of the firm.

Greg Gray, the company’s president and CEO, is unapologetic and refreshingly candid. “We’re running a business; you have to make some money,” he says. “We should be able to make a reasonable return on investment. If you’re paying out more than 80%, it’s difficult to do so.”

Gray says the firm has other qualities that earned it a higher sixth-place ranking overall. “Advisors want stability,” he says.
“[Parent company] Manulife [Financial Corp.] has been around for 125 years-plus. That’s compelling to a lot of advisors today.”

One of the biggest changes in scores this year are at Toronto-based Dundee Private Investors Inc., with an average payout score of 7.1, down 0.8 from last year.

“There are no statistics or average earnings on what a financial planner should be earning after one, two, three years and so on,” says one Dundee planner in Ontario.
“Brokerages have different grids, but we make the same payout whether we work hard or not.”

Cartier Partners Financial Group planners scored their firm 0.6 lower with an average 7.5, and FundEX Investments Inc. planners, who receive a 100% payout in exchange for paying monthly fees and paying some expenses themselves, scored the firm 1.6 lower with an average 8.2, down from 9.8 in 2002.

David Fowles, FundEX CEO, speculates the lower scores reflect higher monthly fees with which FundEx advisors have been hit. “We had to increase monthly fees to finance a much more robust compliance structure than the company had in the past,” he says.
“We’re still a 100% shop.”

Not all news is bad, however. The biggest gain this year can be found at Winnipeg-based IQON Financial Inc., where the average score was 8.0, up from 6.9 in 2002. And planners at Mississauga, Ont.-based PFSL Investment Canada Ltd. gave the firm an average 8.8 for payout, up from 8.3 the year before.

The difference at IQON seems to come from the fact that advisors are, on average, taking home 2% more. Planners this year say their average payout is 80%, vs 78% last year.

But two percentage points in the pay scale — even when it’s in the opposite direction — don’t always sway opinion. Burlington, Ont.-based Berkshire Investment Group Inc. took second place for payout even though planners report an average 2% decrease in pay, down to 76% from 78% last year. Some even say compensation is one of the best reasons to work for the firm. But with maximum payouts of 80%-85%, several Berkshire planners sound like they’re waiting for the other shoe to drop. “They may be reducing payouts,” says one Manitoba planner.