The following article is based on Amy Parvaneh’s presentation at the Barron’s Teams Summit called The Best Compensation Structures to Incentivize Growth (While Keeping Your Team's Culture).
How to Reward Your Team around New Business While Also Protecting the Business
In my nearly decade-long experience of management consulting some of the largest financial and wealth management firms in the nation, from United Capital (which was bought out by Goldman Sachs) to LPL to multi-billion dollar RIAs, one of the key challenges I have been brought in to solve has been the restructuring and ignition of “sales” teams.
I put “sales” in quotes, mainly because most times these folks I am now responsible for consulting around were not typically hired for a role of sales and business development. In fact, just like me, they are MORTIFIED by the word Sales!
They were originally hired for servicing, paraplanning or investment advising.
But throughout the years, as their company’s profits were more squeezed, and the main business developer (typically the CEO) ran out of steam, the responsibility changed from pure servicing, to servicing with a touch of sales.
I wrote about this in my article in RIABiz titled RIAs need to get over 'quotas' when it comes to sales and growth, or end up being owned by an RIA that knows how to impose them:
I started the article writing:
“RIAs who have left the wirehouses to set up shop often cite fiduciary reasons for doing so. They escape sales pressure, but many times they stop making sales altogether.
Next thing they know, they have no organic growth (aside from their original clients’ referrals) and may reluctantly need to sell themselves back to a giant institution.
At the center of the advisor sales dilemma is a dreaded word -- quota. Professionals know it as an inflexible performance metric applied to a task where technically we have no control over the outcome.
The prospective client holds the signing power, the assets and the ability not to respond to voicemail messages.
What we know of quotas is that their rigid nature can force a broker's hand -- leading to deception, intimidation or even the opening fake accounts. Totally get that.
But a fear and disgust of quotas is counterproductive. Just because athletes want to win so badly they take steroids, doesn't mean we toss athletic competition.
A quota is simply a measure of accountability.
It is the key ingredient for sales and growth-- that “number” that you have to achieve in sales by a certain date.
That quota is what keeps every sales person on target, focused on the prize and many times up at night. As dreaded as it is, it works and it's unlikely that most firms can find an alternative.”
Read the rest of the article I wrote here.
But let’s say you’ve set the quota in place and have provided great sales training to your advisory team [learn more about our sales training for financial advisors programs].
Now what? How do you pay your sales people so you are motivating them to bring in business, but not squeezing so far into your profits that it makes the rewards negligible?
Some key questions I’ve been asked by my clients are:
1) If I’m going to pay my advisor on the size of their book being managed, does that include accounts I’ve handed down to them from my own book so I can build more scale? What happens if the advisor brings in more wallet share that was already accounted for? Do I pay them the full Business Development bonus?
2) How do I pay my team on a trailing basis for business they’ve brought in?
3) What is the right balance between salary and bonus for someone hired purely for business development? How about someone hired purely around servicing but brings in business? What IS considered “bringing in”?
4) Do you give a “finders fee” versus a closing fee? How do you split the comp if the entire team was involved?
5) Does it count as new business if you get more wallet share from a client?
There are many many intricacies around these questions which we help answer in our Advisor Business Consulting Programs [click here to schedule a call with us about this topic]. We can help you calculate various scenarios for the optimal solution customized to your firm.
But on a high level, we wanted to share with you just a few compensation structures we’ve seen in the industry for your reference.
Successful companies often undergo “growing pains” as they figure out how to scale – adding headcount and increasing product output while at the same time not sacrificing product quality, all while remaining, or ideally, growing in profitability. For RIA firms, one of the most important questions that must be answered as the business grows is how to structure compensation. The right pay and bonus structure will allow you to retain current employees, attract new talent, foster positive company culture, and ensure that the business is insulated somewhat from conditions that adversely affect profitability.
Let’s look at a couple of the most common compensation structures in the Registered Investment Advisor and Investment Management space:
Percentage of new business
In this structure, a new employee is paid a percentage of all new business that comes in after they are hired. It’s heavily weighted toward incentivizing employees to attract new business and harkens back to days that were more focused on hard-pitch salesmen, slinging their products to prospective clients. The base assumption here is that the percentage granted to the employee recognizes their individual contribution to the team effort.
Here’s an example of how that might work:
Firm: ABC
Fiscal: 2023
Net New AUM: $80 million
Net New Revenue: $120,000
Client Service Admin (Bonused at 10% of new business) = Base pay + $12,000
Paraplanner (Bonused at 30% of new business) = Base pay + $36,000
These percentages, while arbitrary, show how different roles within the firm might be rewarded.
But as the firm grows, you can see how this model might not scale efficiently.
For example, after a year of growth where this firm brings in an additional $250,000 in new revenue, they’re suddenly giving an admin a $25,000 bonus, and the planner a $75,000 bonus – eating into the capital the firm needs to continue growing. Again – this is a simplified example, but you can see how this compensation structure could put the long-term scalability of the firm at risk. Especially when they start adding headcount to support the new business.
Percentage of gross revenue
In this structure, bonuses are paid based on a small percentage of the overall firm’s profitability. These are typically smaller percentages, often as little as one or two percent. But for a very large firm with a lot of AUM, that two percent can translate into a substantial bonus.
Here’s an example showing the same two employees in a different compensation structure:
Firm: ABC
Fiscal: 2023
Net New AUM: $15 million
Net new revenue: $100,000
Gross revenue: $580,000
Client Service Admin (Bonused at 2% of gross revenue) = Base pay + $11,600
Paraplanner (Bonused at 5% of gross revenue) = Base pay + $29,000
This compensation structure improves the scalability of the firm as bonuses will rise only as a percentage of growth versus the overall revenue of the firm.
If we put the following year in the same scenario as the first example, a growth year showing $250,000 in additional revenue, we see that the bonus for the admin rises to $16,200, and the paraplanner sees a bonus of $41,500. These increases reward employees for their hard work, but are less likely to balloon out of control as the business grows. This structure also recognizes the importance of retaining clients as well as attracting new ones. After all, if the firm is gaining a lot of new business, but also losing a lot of current business, everyone is working twice as hard to merely break even.
All of that being said, there is still the risk that if the business continues to grow, with gross revenue climbing as new business gets added to ongoing revenue, bonus compensation could still get a bit lopsided. Which brings us to the third compensation structure.
Fixed bonus structure
In this compensation structure, employees are incentivized with fixed amounts for performance goals.
For example, this year employees may be rewarded with a $10,000 bonus every time the firm brings in at least $50,000 in new revenue.
In this example, the employee would in essence be getting 20% of the new business revenue, however, it’s structured in such a way that employees are not guaranteed that percentage every quarter.
Instead, the incentive can be reset the following year to better reflect the business environment. And employees feel they are being rewarded when the business hits its goals.
As the business grows, the amount of the bonus may remain the same, but the overall percentage of new business it represents would go down. This structure ultimately provides the most scalable model in terms of controlling compensation expenditure as the business grows.
Which compensation structure is right for my RIA?
The compensation at most firms tends to reflect the values and culture of the principal and the employees. However, there are a few things to consider that can set you on the right track when thinking or rethinking your compensation structure.
What do your employees think?
It may seem like common sense, but a great place to start is to solicit input from your existing employees. Do they feel well compensated? Is there a clear pathway to advancement? Do they feel like they are making a meaningful contribution and are rewarded for that work? This feedback is critical in developing a compensation structure that empowers your business to grow and succeed in the long term.
Transparency is more than just a buzzword
Making sure your team understands the hows and whys of the compensation plan ensures they are set up to succeed, and by proxy, the firm will be set up to succeed. Clearly lay out goals and milestones that translate into tangibles for your employees. If changes must be made, explain why and how the decision was made. Employee perception of the overall plan will be driven by how transparent you are in its creation and implementation.
Firm strategy should inform the plan
The best compensation plans give employees confidence that if they stick to the firm strategy to accomplish the overall business goals, they will be rewarded for that work. That means structuring bonuses around real achievable goals that correlate directly with the success of the business.
Don’t be afraid to make changes
Once you have your compensation plan in place, it’s time to regularly check in on it, along with your employees, to make sure the details still make sense for employees and for the business. For example, if the firm needs to focus on current business for a period of time to deploy new processes, teaming, or training, etc. It’s unfair for bonus compensation tied to new business to be affected by that change. Don’t be afraid to make adjustments as it makes sense for the business and employees as long as you’re transparent about it and communicate with your team. Another example might be that as the firm grows, bonus percentages may need to shift to more accurately reflect team contributions or changes in headcount, etc.
There’s likely no right answer that applies to all firms in terms of how to structure compensation to best retain the most talented employees, attract new employees, and empower the business to grow and expand. At the end of the day, the best thing you can do is be flexible and ready to adapt if things are not working.
Want to have our team help you develop a robust compensation structure that’s custom-fit to your needs and team?
We have an entire program and calculation to revolutionize your compensation, payout and bonus structure to help anyone on the team bring in more business and opportunities.
Please schedule a call with us to discuss this important topic.
The right compensation structure is a critical factor in attracting and retaining top talent within advisory firms. Modern firms are increasingly adopting hybrid models that combine base salaries with performance-based incentives, creating a balanced approach to rewarding consistent results and driving long-term growth. This alignment of compensation with individual and team performance not only motivates employees but also ensures client-centric outcomes, enhancing overall firm productivity. By tailoring compensation packages to meet the unique needs of advisors, firms can foster a culture of collaboration and innovation while staying competitive in a dynamic industry.
To further stand out, advisory firms are incorporating creative benefits such as equity participation, deferred compensation plans, and milestone-based bonuses. These advanced strategies incentivize professionals to remain committed to the firm's success while building a sustainable career path. Additionally, firms are leveraging data analytics to design comp structures that are fair, transparent, and aligned with industry benchmarks. At Select Advisors Institute, we specialize in helping firms craft compensation models that strike the perfect balance between incentivizing individual performance and fostering firm-wide success. With the right strategy in place, your firm can attract elite talent and maximize long-term value for both employees and clients.
To ensure your RIA firm remains competitive, it is crucial to understand the various advisor compensation models available and how they impact both performance and profitability. Choosing the right compensation strategy is not only essential for attracting and retaining top talent but also for aligning your advisors' incentives with the firm’s long-term objectives. Popular models, such as salary plus commission, commission-only, and performance-based bonuses, allow firms to tailor compensation to their specific needs. Understanding these models and their respective advantages and challenges can help advisors maximize their earning potential while driving the firm’s growth and success.
Additionally, it’s important to regularly reassess your advisor compensation structure to ensure it remains competitive within the industry. As the financial advisory landscape evolves, so too do the expectations and compensation benchmarks that drive advisor behavior. By implementing flexible and transparent compensation models, firms can foster an environment of collaboration, motivation, and continuous professional development. A well-crafted compensation plan not only incentivizes advisors to increase productivity but also strengthens client relationships by aligning financial goals with performance metrics, ultimately contributing to the overall success of your firm.
The Importance of Compensation Analysis for Financial Firms
Compensation analysis is a critical process for financial firms aiming to maintain a competitive edge in attracting and retaining top talent. By evaluating market trends, employee performance, and industry benchmarks, firms can design compensation models that not only reward productivity but also foster loyalty among employees. For financial firms, where roles are diverse and responsibilities often high-stakes, ensuring equitable and competitive pay structures is essential. A well-executed compensation analysis aligns the firm’s strategic goals with employee expectations, driving both satisfaction and performance while reducing turnover rates in a demanding industry.
How Financial Firms Can Optimize Their Compensation Models
To remain competitive, financial firms must continuously refine their compensation models through data-driven analysis. This involves assessing external factors such as market demand and salary benchmarks, alongside internal metrics like role-specific contributions and business outcomes. Optimized compensation structures motivate employees and align their goals with the firm’s long-term vision. Moreover, firms that prioritize transparency in their pay practices build trust and enhance their reputation, making them more attractive to top-tier professionals. With the right tools and strategies, compensation analysis becomes a powerful asset, enabling financial firms to achieve sustainable growth and retain their competitive standing in the industry.
Investment firm bonus structures are a critical component of attracting and retaining top talent in the competitive financial services industry. A well-designed bonus structure motivates employees to perform at their highest level while aligning their goals with the firm's overall business objectives. By offering performance-based incentives, investment firms can reward employees for driving growth and expanding the client base, ultimately leading to increased profitability. Additionally, a transparent bonus structure helps build trust among employees, as they can clearly see the connection between their efforts and the rewards they receive.
An effective investment firm bonus structure takes into account various factors, such as individual performance, team achievements, and firm-wide goals. For instance, bonuses can be tied to sales metrics, client retention rates, or the successful execution of strategic initiatives. This multi-faceted approach ensures that employees are incentivized to focus on both short-term and long-term goals, fostering a culture of collaboration and accountability. By customizing bonus structures to reflect the unique needs and priorities of the firm, investment firms can create a system that drives success at all levels of the organization.
In addition to traditional cash bonuses, investment firms are increasingly adopting alternative compensation models, such as equity-based incentives or profit-sharing plans. These models not only provide immediate financial rewards but also offer long-term incentives that align employees' interests with the firm's performance. Equity-based compensation, in particular, encourages employees to take a vested interest in the firm's success, fostering a sense of ownership and commitment to the firm's growth. By offering a mix of both short-term and long-term incentives, investment firms can attract and retain high-caliber talent while driving sustainable business growth.
At Select Advisors Institute, we specialize in designing investment firm bonus structures that are tailored to the specific needs of each firm. Our team works closely with investment firms to develop compensation models that motivate employees, enhance performance, and align with the firm's strategic goals. By leveraging our expertise in financial services and compensation planning, we help firms create bonus structures that drive success and ensure they remain competitive in the ever-evolving investment landscape.
In Registered Investment Advisor (RIA) firms, profit-sharing structures play a crucial role in aligning the interests of the firm’s owners and partners with the overall success of the business. The right profit-sharing model can incentivize high performance, promote long-term growth, and ensure partners remain committed to the firm's success. Typically, RIA firms structure profit-sharing plans to reward partners based on the firm's profitability, taking into account their contribution to the firm’s performance, client retention, and overall growth. By tying compensation to both short-term results and long-term achievements, RIA firms can create a culture of collaboration and performance that benefits all stakeholders.
One popular method used by many RIA firms is the "percentage of profits" model, where partners receive a fixed percentage of the firm’s overall profits, often calculated at the end of the fiscal year. This straightforward approach ensures that profit-sharing is directly tied to the firm’s performance. It’s also relatively simple to manage, making it an attractive option for smaller firms or those just starting out. However, firms may also integrate performance-based metrics to calculate the exact share, considering factors such as client acquisition, assets under management (AUM), and other key performance indicators (KPIs).
Another common structure is the "equity-based" profit-sharing model, where partners are granted equity or ownership stakes in the firm. This model is often used in firms looking to reward their top producers with long-term incentives. By offering equity, RIA firms can ensure that partners are invested in the long-term success of the firm, encouraging them to think strategically about growth, expansion, and retention. Equity shares can also be tied to specific performance milestones, creating a highly motivating system for partners to work towards increasing the firm’s value and profitability over time.
At Select Advisors Institute, we understand the complexities of structuring profit-sharing models that both attract top talent and encourage sustained growth within RIA firms. We offer training programs that delve into the nuances of compensation strategies, including profit-sharing and equity distribution, tailored to the unique needs of each firm. By refining these compensation models, RIA firms can effectively align the incentives of their partners, ultimately ensuring a cohesive team and the continued success of their business. Whether you’re looking to enhance profitability or improve partner retention, understanding and implementing the right profit-sharing structure is key to achieving long-term goals in the competitive financial advisory space.
Creating KPI-based bonuses for financial advisors is a powerful way to align compensation with performance, ensuring that both the firm and its advisors are working toward common objectives. Key Performance Indicators (KPIs) help to measure specific, measurable goals such as client acquisition, revenue growth, and portfolio performance. These metrics are vital in creating a bonus structure that is not only motivating but also ensures the financial advisor's efforts directly contribute to the firm’s success. By setting clear, attainable KPIs, financial advisory firms can create a more predictable and results-driven compensation strategy.
When designing a KPI-based bonus structure, it’s important to first define what success looks like for your firm. The KPIs should align with the firm’s overall goals, whether that’s increasing client retention, growing assets under management, or boosting revenue from specific services. Once these goals are established, consider setting tiered bonuses based on the level of performance achieved. This approach encourages advisors to continually strive for excellence while rewarding incremental improvements. A transparent bonus structure helps advisors understand exactly what is expected of them and provides clear incentives for exceeding those expectations.
In addition to traditional KPIs, consider integrating qualitative factors such as client satisfaction and relationship-building efforts. While financial metrics are essential for measuring performance, the ability to maintain strong, trust-based relationships with clients is just as critical for long-term success. Including customer-focused KPIs, such as client feedback scores or the number of referrals received, adds another layer of performance measurement and helps ensure that advisors are fostering meaningful connections with their clients. This balance of quantitative and qualitative KPIs creates a holistic view of an advisor’s impact on the firm.
Select Advisors Institute specializes in helping financial firms design and implement effective KPI-based bonus structures tailored to their specific business needs. With years of experience in sales and business development for financial advisors, we provide the tools and insights necessary to build incentive programs that drive both individual and firm-wide performance. Whether you’re looking to refine your existing compensation model or create one from scratch, Select Advisors Institute offers expert guidance to ensure that your bonus structure motivates advisors to meet and exceed their targets, driving sustained growth and success for your firm.
Designing effective sales incentives for wealth managers is crucial to driving performance and aligning the goals of the firm with individual success. A well-structured incentive program motivates wealth managers to focus on client acquisition, retention, and revenue growth while reinforcing the desired behaviors that support the long-term vision of the organization. To achieve this, firms must carefully consider the metrics and key performance indicators (KPIs) that will best measure success, ensuring that incentives are tied to both quantitative and qualitative results. Incorporating elements such as assets under management (AUM), client satisfaction scores, and business development activities can help ensure that wealth managers remain focused on building meaningful, lasting relationships with clients.
Incentive structures should be designed with flexibility to accommodate different types of wealth managers, whether they are more focused on relationship management, new client acquisition, or growing existing portfolios. A tiered commission structure that rewards higher levels of performance, along with bonuses for hitting specific sales targets or maintaining a high retention rate, can help create a sense of progress and achievement. The key is to tailor the incentives to what motivates each individual wealth manager, acknowledging that their goals may differ depending on their role within the firm or their specific client base. By doing so, firms can promote healthy competition and provide wealth managers with the drive to continuously improve.
In addition to financial incentives, non-monetary rewards can also play a significant role in motivating wealth managers. Recognition programs, leadership development opportunities, and access to exclusive resources can all serve to boost morale and foster a sense of belonging within the organization. These types of incentives are particularly effective in promoting a long-term commitment to the firm's values and culture, which in turn helps with employee retention and talent development. As wealth managers advance in their careers, offering growth opportunities through mentorship or advanced training can also align incentives with the professional development goals of both the individual and the firm.
Select Advisors Institute specializes in designing and implementing sales incentive programs that are tailored to the unique needs of wealth management firms. By combining industry expertise with a deep understanding of the challenges wealth managers face, Select Advisors Institute offers customized solutions that motivate teams, improve performance, and ultimately drive business success. With a focus on creating incentive structures that align with both personal and organizational objectives, wealth management firms can increase productivity, boost morale, and achieve sustainable growth.
When choosing a branding and marketing firm for law firms, it's essential to find a partner with specialized expertise in the legal sector. A firm that understands the unique challenges and opportunities law firms face can create marketing strategies that speak directly to your target audience. From personal injury to corporate law, different practice areas require tailored messaging and approaches. A branding and marketing firm with in-depth experience in law firm marketing will ensure that your firm's value propositions are communicated effectively, setting you apart from competitors in your region and practice area.
A key factor in successful law firm marketing is developing a cohesive brand identity. Your law firm’s brand is more than just a logo—it's an entire experience for your clients. The right branding agency will help establish your firm's voice, personality, and image, which resonates with clients and helps you build trust. Whether you're a small boutique firm or a large regional player, creating a strong and consistent brand identity across all channels, from your website to social media profiles, helps foster long-term relationships with clients. This consistency strengthens client loyalty and attracts new clients who identify with your firm’s values.
In addition to branding, law firm marketing requires a strategic approach to content creation. Educational and informative content positions your firm as a thought leader and builds credibility in the legal community. By focusing on providing real value to your audience, whether through blog posts, case studies, or client testimonials, your firm can demonstrate expertise and trustworthiness. The marketing firm you choose should assist in curating high-quality content that showcases your firm’s accomplishments, knowledge, and commitment to client success. In the long run, content marketing can significantly improve your firm’s search engine rankings and increase online visibility.
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When structuring deferred compensation for advisors, firms must strike a balance between long-term retention, performance incentives, and financial sustainability. A well-designed deferred compensation plan should reward advisors for client retention, revenue growth, and firm-wide success while ensuring that payouts align with the firm’s long-term profitability. The best plans typically incorporate a mix of cash bonuses, equity participation, and structured vesting schedules to incentivize continued engagement.
One key factor in structuring deferred compensation is determining the vesting period. Many firms implement a multi-year vesting schedule that gradually grants ownership or deferred payments over time. This approach encourages advisors to remain with the firm while also fostering a culture of long-term commitment. A properly structured vesting schedule can also protect the firm from short-term turnover while ensuring that advisors benefit from their contributions.
Tax efficiency is another critical consideration. Firms should explore tax-advantaged structures, such as non-qualified deferred compensation plans or stock appreciation rights (SARs), which allow advisors to defer income and reduce immediate tax liability. Consulting with financial and legal experts ensures that the plan complies with regulatory requirements while maximizing benefits for both the firm and the advisor.
At Select Advisors Institute, we specialize in designing customized deferred compensation plans that align with a firm’s growth strategy and advisor incentives. Our expertise in compensation structuring helps financial firms create plans that attract top talent, drive performance, and enhance long-term stability. By implementing the right mix of financial incentives, vesting schedules, and tax-efficient structures, firms can ensure that their advisors remain motivated, engaged, and invested in the firm’s long-term success.
Deferred compensation plans for financial advisors are a powerful tool for retaining top talent while aligning incentives with long-term business growth. Select Advisors Institute specializes in designing customized compensation structures that help firms attract and retain high-performing advisors. By implementing well-structured deferred compensation plans, firms can offer financial advisors a compelling reason to stay committed while securing their financial future.
One of the key benefits of deferred compensation plans is their ability to provide long-term wealth accumulation opportunities. Select Advisors Institute works with firms to create tailored plans that include stock options, profit-sharing arrangements, and performance-based bonuses. These incentives ensure that financial advisors remain motivated and engaged, knowing their contributions today will lead to significant rewards in the future.
In addition to financial benefits, a well-designed deferred compensation plan fosters loyalty and stability within an advisory firm. Select Advisors Institute helps firms develop vesting schedules and retention clauses that encourage advisors to build lasting relationships with clients and contribute to the firm's success. This approach reduces turnover and ensures continuity in client service, ultimately strengthening the firm’s reputation and market position.
To maximize the effectiveness of deferred compensation plans, firms must communicate their value clearly and transparently. Select Advisors Institute provides strategic guidance on how firms can structure, present, and implement these plans to create a competitive advantage. By offering advisors a clear path to long-term financial security, firms can enhance advisor satisfaction, drive performance, and solidify their position as a top destination for elite financial professionals.
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