Incentive compensation should align with firm goals

More firms set triggers based on growth than client service or retention, survey finds

Apr 22, 2015 @ 12:54 pm

By Liz Skinner

Advisory firms should examine whether their incentive compensation plans are aligned with the bigger goals they are working toward. Many times they aren't, experts said.

Incentive compensation plans for financial advisers and planners most often are triggered by business growth goals, according to a survey released Wednesday by the Financial Planning Association.

About 82% of firms said incentive compensation for advisers is based on new revenue they bring to the firm, 70% said new clients and 63% said new assets, according to the survey of 694 financial professionals.

About 52% base incentive comp on client retention, and 41% on client satisfaction, the survey found.

“Firms discuss wanting growth, and increased client engagement and better client service, but the majority of compensation plans are usually based on just one of those things,” said Julie Littlechild, founder of If Not Now Research and a member of the survey team. “Advisers need to step back and figure out what outcomes they're trying to achieve as a firm and use that as a filter to develop a compensation plan.”

The most sophisticated compensation plans will support the outcomes the firm is trying to achieve, she said.

Source: Financial Planning Association

(More: Getting your firm's employees to perform is about more than just compensation)

Advisory firms that want to encourage teamwork should look at whether they are incentivizing advisers to work that way, she said.

About 79% of firms said individual performance drives incentive-based comp for advisers versus 57% who base it on firm performance and 48% on team performance, according to the FPA survey.

Kelli Cruz, managing director of Cruz Consulting Group, an adviser comp and incentive plan consultant, said successful compensation plans include multiple incentive drivers for a particular individual and offer a team-based goal as well.

Drivers that are specific, such as participating in three community events that will potentially bring in 10 prospects, can be most effective at targeting and reaching goals, she said.

“Firms will get much better results once they get to a place where their people understand what they have to do more of and how that equates to additional compensation,” Ms. Cruz said.

Advisers will appreciate the clarity, she said.

“Most advisers welcome the transparency of a defined incentive plan because now they understand where their efforts are going to be best rewarded.”

Many firms acknowledged their compensation programs could be improved.

Source: Financial Planning Association

Less than a third of firms surveyed by the FPA said they feel their compensation package for employees is highly competitive compared with the universe of firms their same size.

In addition to aligning adviser compensation incentives with firm objectives, executives should think about whether they are doing enough to retain their support team, Ms. Littlechild said.

The FPA survey found that only 22% of support staff were very satisfied with their jobs.

(More: Take the InvestmentNews 2015 compensation survey)

“When you talk to decision makers about why team members leave, the reasons aren't matching up with why people say they leave,” she said. “Firms should take a little more time to understand what it is the team really values.”

About one-third of employees said compensation was the leading factor in their decision to leave the firm.


What do you think adviser incentive comp should be based on?

View comments

Recommended for you

Sponsored financial news

Advisers on the Move

Upcoming Event

Mar 13



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print