This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
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The annual college football bowl tradition is in full swing as I write this, marching toward the four-team playoff finale.
A few days ago, here in my hometown of Tampa Bay, the University of Central Florida Knights beat the University of Florida Gators in the Gasparilla Bowl.
For us Floridians, such an outcome was historically unimaginable. UCF, after all, would normally be deemed lucky even to get a chance to play UF, never mind beat them. But alas, this is Florida….so anything is possible!
UCF Coach Gus Malzahn received a $25,000 bonus for the victory.
While such a payday pales compared to the $800,000 bonus University of Alabama Coach Nick Saban is eligible to earn for winning the national championship game, it nonetheless got me thinking about compensation alignment.
It is reasonable to provide a football coach with a compensation plan to incent them to achieve the objectives the university has hired them to accomplish with the football team.
Not surprisingly, when bonus incentives are included, they usually revolve around playoff/bowl appearances and being victorious in those games.
That is fair.
Imagine, though, if universities started crafting their coach’s compensation plans the way broker/dealers draft plans for their advisors:
Coach, we’re going to change your compensation plan pretty much every year. We realize doing so is counterproductive to your ability to craft a long-term strategy for our football program, but we’re going to do it anyway.
Coach, there are a fair number of freshmen on the team not getting as much playing time as the older players. We’re going to reduce your compensation if you keep bringing those young guys on the team.
Coach, if you, the offensive coordinator, and defensive coordinator, all collectively refer to yourselves singularly as “coach,” we will raise your compensation.
Coach, we know we’ve agreed to pay you a certain amount for this season, but we decided we’re going to take some of what you’ve rightfully earned and not pay it to you until years from now. That’s, of course, assuming you’re still our coach by then.
Coach, we’ve agreed on how much to pay you per game, but we’ve decided to instead not pay you for the first three minutes of each quarter. We don’t have a good reason for doing that, other than it keeps more money in our pocket.
Coach, some of the alumni like watching field goals. Even though it might not be in the best interest for winning the game, we’re going to reduce your compensation if you don’t kick at least four field goals per game.
Coach, last year we agreed to pay you a $100,000 bonus for winning a bowl game. If you want that same $100,000 bonus again this year, we’re going to require that you not only win the bowl game, but this year you also have to win it by at least nine points.
Coach, we realize there are 100 different offensive play calls in the game of football. While some of our opposing teams will be able to use all 100, we’ve curated a list of 60 of them, and they are the only ones you’ll be allowed to use.
Coach, we realize that other comparable coaches around the country are being paid a lot more than we’re paying you. However, we know that you have a spouse and children assimilated here in the community and that moving to another university would be a big undertaking. So, lucky you, we’re going to keep paying you less.
Coach, we’d like to save on expenses this year, so the special teams' coach we allowed you to hire, we’re going to need them to also now part-time coach the soccer team.
Coach, we realize we hired you to coach football, but we’re going to need you to make at least 10 introductions a year to the season ticket holders’ sales office.
Coach, last year the team racked up 3,162 offensive yards rushing. The highest in school history! Next year, if it’s not at least 3,400…. pay cut!
Coach, with the three national championships you’ve won, you routinely attract the top high school prospects in the nation. Don’t think they are coming here because of you, though; it is because of the name of our university.
Coach, apparently, you didn’t hear us mention the field goals. More of them!!
In the broker-dealer world, freshmen are trainees and new recruits, a “coach” is an advisor, field goals are proprietary, high-fee products, offensive plays are investment products, special-teams coaches are support staff, and new season-ticket holders are new clients.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
Read more articles by Brad Wales
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
