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Often times advisory firm owners struggle over associate, junior advisor and even partner compensation. They cannot gauge starting salaries, so they keep pushing the human capital decisions off, which is detrimental to the overall success of the firm.
Not knowing the best practices around compensation also impacts existing employees.
Here are some useful tips based on my interviews with a handful of industry experts.
Be creative with compensation
The dollars deposited into an employee’s bank account are not the only thing that attracts and motivates a member of your staff.
Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional advised owners of RIAs to “think beyond cash.” She said that a focus on total rewards is more important. Retirement, health benefits and intangible perks should be a focus.
Oligino referenced a Gallup study, the 2017 State of the American Workforce. She pointed out that it says “a significant increase in income” is the fourth item people take into account when considering a new career opportunity.
The three things before income are:
- A role that allows them to do what they do best;
- Greater work-life balance and better personal well-being; and
- Greater stability and job security.
She encouraged those hiring to think “in terms of total return.” She shared a list of non-traditional benefits, including working remotely, flex time, wellness benefits like a gym membership or even organic food vouchers, paternity and maternity leaves, training, free meals on Fridays, summer Fridays where there is a rotation of who can take off early, casual dress and volunteering.
These types of investments in associates create a desirable culture and build community in a firm. For these reasons, Oligino claimed employee compensation should have more than just the cash component.
Find where to start
Firm owners get stuck on how much to compensate advisors and associates. Phillip Flakes, co-founder and CEO of Succession Link, pushes advisors to do their research.
There might be a significant range, and that might vary by region. Flakes points out that when hiring advisors, it is important to determine things like whether this person will be a partner or a W-2 associate.
When looking for a salary range, Flakes recommends starting with glassdoor.com and payscale.com. That is even more complicated when bringing on partners, as the total partner compensation can be comprised of salary, bonus and profit sharing.
After that, Flakes says owners should get more refined with their new-hire offering by networking with other advisors and asking lots of questions. It is no surprise that he believes his own Succession Link is a great place to network. (If interested, use discount code BYRNS25OFF to get 25% off.)
One great point that Flakes makes is that if a firm has a solid presence with a unique value proposition it can offer starting salaries that are below the market averages with the promise of more upside. Those choosing to join a firm have to decide if an established brand and nice office space outweigh what a person can make on their own.
Know what new hires want
“Compensation that is pure commissions will not attract the best advisors; it will attract the best salesmen,” says Mitch Vigeveno, CEO of Turning Point Inc., an executive search consultancy.
He believes advisors and staff, particularly millennials, want decent compensation, but they also want quality of life, good vacation time and a culture that fits in well with their values. They want to work for a company that cares and values their clients and does what is best for them.
Vigeveno says smart advisors are more concerned with support services that will help them build their business rather than the overall compensation to start. They know that in the long run they will make more money if the support is good.
He also claims that seasoned executives are typically more concerned with the “whole package” rather than the cash compensation. They are particularly interested in equity opportunities that are attainable or, in some cases, immediate if they are leaving equity interests behind to move.
Figure out if ownership makes sense
By providing ownership to someone in a firm, goals become more aligned and motivation and work ethic increase. However, there are issues.
Chris Winn, CEO and lead consultant of AdvisorAssist, recommends knowing if the potential partner can handle these circumstances:
- Are employees prepared for a tax allocation of profits, even though they may not be able to take the cash?
- If there is an error, are they ready to step up to fund their portion?
- If there is a strategic opportunity, will they be ready to help fund it?
In many of these instances, the minority owner may not be equipped to handle the burden of ownership, advises Winn. He recommends, “To mitigate this issue, many firms are creating tracking units, rights upon liquidating, profit participation units and other incentives. A healthy firm wants everyone to share in the success. It is just not as easy as it sounds.”
Have a human capital plan
Because there are so many moving parts in an organization, there has to be a vision of what the firm should look like and then how it should be staffed in the future. The roles of management, marketing, sales, service, operations, technology, human resources, compliance and other areas get more specialized as a firm grows.
Having a well thought out plan allows a firm to do a gap analysis and see where associates need to grow into positions and where new hires need to be made. If employees know there is a career path opportunity for their own personal growth, they will likely stay motivated and satisfied with their jobs, which increases retention and results.
Identifying gaps might even show that a tuck-in of another advisor or even a more complicated merger and acquisition strategy is necessary to fulfil the vision.
If owners and managers go at it blind without the master human capital plan, compensation mistakes will be made.
Mike Byrnes is a national speaker and owner of Byrnes Consulting, LLC. His firm provides consulting services to help advisors become even more successful. Need help with business planning, marketing strategy, business development, client service and management effectiveness? Read more at ByrnesConsulting.com and follow @ByrnesConsultin.
Read more articles by Mike Byrnes
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
