If it walks like a duck and quacks like a duck, then it probably is a duck. Canada’s financial services industry is facing a similar dilemma, if not exactly ornithological. But if you sell products and are paid commissions or are rewarded for sales, you are inevitably going to be considered a salesperson.

As the industry moves away from sales-based practices and toward advice-focused models, many say it is time for the fundamentals of the industry’s compensation structure to get an overhaul. Just what that looks like is yet to be determined, but some of the industry’s major players are trying solutions on for size.

It has become evident through years of Report Cards that advi-sors across all channels are loath to think of themselves as salespeople. As one advisor in Ontario with Guelph, Ont.-based Co-operators Group Ltd. puts it: “I’m not comfortable with the way we’re paid right now.”

That doesn’t surprise Anne Montgomery, associate partner in Toronto-based Deloitte & Touche LLP’s tax practice, who has worked with Canadian financial services institutions to develop compensation packages for advisors and executives. “Advisors are saying, ‘Yes’ to bonuses, but they want a more holistic or broad-based approach to what determines a bonus,” she says. “On the other hand, firms want to reward not just what advisors themselves are doing but what an advi-sor is doing to help achieve group or firm results.”

Montgomery adds that publicly traded firms are under a great deal of scrutiny from shareholders as to whether bonuses are actually rewarding advisors for delivering on the company’s strategy.

It is the Big Six banks that are leading the move to tie compensation to services rather than sales. The banks and credit unions have never adopted the traditional grid structure of pure commissions that typifies the other distribution channels. Compensation in the bank/CU channel is salary plus bonuses, which generally keeps account managers happy. Although the banks are often criticized for their lower take-home pay, advisors are complaining less about their salaries in today’s volatile market.

“I always have that safety net, my salary,” says an advisor in British Columbia with Royal Bank of Canada.

Certainly, the banks have found ways to add value to account managers’ salaries. Surveyed advisors with Royal Bank, Bank of Nova Scotia and TD Canada Trust praised their firm’s total benefits packages, equity ownership programs and bonuses.

While many components of Royal Bank’s compensation package are similar to what’s offered at other banks, Royal Bank stands out because of its progressive efforts to use bonuses to align clients’ interests with advisors’.

For instance, clients of Royal Bank account managers are surveyed by the bank, and the quality of the service those clients have received is taken into account when determining the account managers’ bonuses. Says Anne Fithern, vice president with Royal Bank in Toronto: “Relationship management is a key component of the financial planner variable-pay program. Client satisfaction with the relationship is measured via random telephone survey of clients to assess the level of satisfaction with the services, products and advice provided by their financial planner.”

Adds the bank’s vice president and head of branch investments, Michael Walker: “The bonus is based not only on sales and production but also on the client experience the advisor delivers.”

Royal Bank’s model of using the results of client surveys as a metric for calculating bonuses is certainly unusual, but the bank is not alone in going this route. Similar models are in use south of the border and, more important, other firms here in Canada are starting to focus on what their clients are saying.

Toronto-based TD Waterhouse Private Investment Advice, for instance, is leading the way among the bank-owned investment dealers, as it uses a “client experience index” to monitor client relationships. However, the index is not a tool for determining compensation; rather, it provides the firm’s brokers with guidance for their practices. “We differentiate ourselves very much from the rest of the Street and the other full-service brokerage firms,” says Mike Reilly, president and national sales manager with TD Waterhouse, “because we measure client experience, inclusive in the full-service brokerage firm. So, therefore, investment advisors will decide on how they want to build their business.”

While the industry moves toward measuring client satisfaction, advisors, on the other hand, are not thrilled at the prospect of this metric being used to determine a portion of their compensation.

@page_break@“A client loyalty survey cut our bonus by 40%,” says a Royal Bank advisor in Ontario. “I don’t get paid what I am worth, and things I have no control over affect how people rank me.”

According to Montgomery, advisors feeling in control of their own compensation is key to their satisfaction. Advisors complain that clients paint advisors with the same brush as their firms, which have been in the headlines, thanks to the asset-backed commercial paper crisis.

“It is not performance-related,” says a CIBC account manager on the West Coast. “There are too many unrelated factors.”

Measuring client experience is just one element of building a better bonus model that rewards accomplishments. Another element, which is growing in importance and evolving at the same time, is employee ownership. Although most firms have equity ownership programs and encourage advi-sors’ participation, many firms are shying away from granting options as bonuses simply because a publicly traded company’s share price is no longer perceived to be the best reflection of an employee’s contribution to the firm.

Rather, options are being replaced by “synthetics,” Montgomery says. Synthetic options are deferred bonuses; they are similar to stock options, but are granted based on metrics such as individual, group or firm performance. These synthetics allow firms to build a more sophisticated measurement of performance that takes into account assets under management, gross revenue and the advisor’s location. So, when the system works, an advisor’s efforts are more clearly reflected in the bonus he or she receives.

“A bonus program must be straightforward and easily measurable,” Montgomery says. And when it’s not, she adds, advisors tend lose patience.

Not only that, but not all advi-sors are pleased with deferred bonuses. “Why give me a bonus I can’t touch for three years?” asks a CIBC advi-sor in Ontario.

A colleague in Alberta adds: “A deferred bonus is just a tether.”

But as many firms move toward a more complex compensation structures, others have chosen to simplify their model. For instance, Montreal-based Peak Financial Group offers its advisors no services, so there are no chargebacks, just transparency and level commissions across all products. “There aren’t any programs at Peak; no trips, just commission,” says a Peak advisor in Quebec. “It’s good like that. Our rewards are our clients. We have more integrity this way.”

Peak is not the only firm to adopt this strategy. Markham, Ont.-based Professional Investment Services (Canada) Inc. has a 100% payout option, and Toronto-based Raymond James Ltd.’ s independent channel promises high payouts and no meddling.

It is clear no firm has found the perfect compensation model. Perhaps none ever will. But regardless of the model, consistency and transparency are of paramount importance. Advisors have to choose the compensation model that fits their businesses and priorities when joining a firm. And there are starting to be more options. IE