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Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.
Dear Readers,
I’m preparing to be in Los Angeles next week for the Barron’s Top 100 Summit. I’ll be facilitating a session on the topic of compensation and incentives. One of my colleagues told me another person said to her, “Good luck to Bev, tackling such a difficult topic!”
The comment put me in a reflective mood. Why — when compensation and incentives are so central to every individual, team and firm — is it a difficult topic to address, and even more so to talk about?
In my years working with advisors, teams, and firms, I’ve had to confront the topic of compensation many times. My focus is on growth and teaming, and while I don’t consider myself an expert on compensation, the topic is closely aligned to those primary areas of focus. It’s hard to grow when you don’t have the right incentives in place to encourage people to focus on actually doing it and hard to team effectively when people may think they are being treated unfairly. It’s such a core issue, and yet almost every team I work with struggles with this topic at one point or another. The reasons are many but can include:
- Prior decisions that were “right” at one point but are no longer appropriate due to the passage of time, evolution of the team, and changes made since;
- Too much money to go around. I know this sounds counter-intuitive, but the sheer wealth one person — or a couple of people — can amass from client fees is astonishing and can lead people to want to hold on to as much as possible;
- The fear of not having enough in retirement. Making sure those last years really count can become a distraction from the present;
- New advisors coming into an existing team or firm who want to be paid well for what they are doing, often times taking on the entire client relationship;
- The “legacy” story — the leaders who believe they built something and deserve credit for it;
- Underestimating expenses and the cost of growth;
- Disagreement around goals and what success really looks like for the team; and
- Hitting a rough patch where the market doesn’t cooperate, growth stalls, and the worries about the future begin.
These are only a sampling; there are other factors, of course. Almost all of it stems from poor planning — hoping that things will be okay and there will be enough money to make everyone happy. As any financial advisor who has worked with ultra-wealthy families knows, “enough” money never materializes. The resulting disagreements and fights can actually increase with more wealth to fight over.
There is a series of steps you can take to make better decisions going forward and ensure that you are on the right track. Yes, it involves time and commitment, but waiting for a problem to arise will cause you much more time and angst!
1. Set clear goals and objectives for the team/firm overall — and do the same for each individual member of the team to ensure they are in alignment with those broader goals. I know anyone who reads my column on a regular basis probably gets tired of hearing me say this, but it is the most overlooked area for most teams.
They may have growth goals — new AUM, increased fees, number of new clients — but they don’t have qualitative goals. What is each person’s contribution? What are the expectations for adherence to cultural norms? What is expected from a teaming or collaboration perspective?
2. Setting goals and identifying contributions leads to the second important point: How do you value each person’s contributions and what they offer the team? This should be done from both a role perspective, including each component of expectations for the role, and from a person perspective — what is the individual offering that may be different and unique from others like them? The more granular you get, the more you can defend what you are doing and why.
3. Have a compensation philosophy. Too many times compensation is looked at as a one-time decision. “We need to hire a director of operations, what is the going rate for this role?” There are many things that go into your philosophy, and most connect back to #1 and #2 above.
What are you trying to accomplish overall? What roles matter most and why? What repeatable processes are in place to make a role more or less valuable? What’s the value of “time” from the perspective of knowing the ins and outs of your firm? What’s the value of outsider knowledge to help make change happen? Leadership should ask themselves these questions when they aren’t pressed to put together an offer letter for a specific candidate and can think more broadly. One caveat: The market for talent is tight in our industry. There are times when your core philosophy may have to be overridden to get the right person in a certain seat. That’s fine and normal for any business. Just make sure when you do this, it is an intentional exception to your core philosophy being made. It’s living by one-offs all the time that leads to poor decisions.
4. Take your time in thinking about your philosophy and implementing it. I have a small firm as a client, about 25 people, that was about to lose an important key player. They made a quick decision to give this person everything she asked for in order to get her to stay. Others learned of the deal that was struck, and it created an uproar within the firm around fairness and decision-making.
The worst part is that this person found a better opportunity less than 18 months later, and she had a strong negotiation platform for the new role based on her increase. The firm lost the person anyway, and in the process (or lack thereof) created bad feelings among the employees who are still with the firm.
5. Lastly, look at this as an evolving process. I started by saying one of the problems I see is historical decisions that don’t evolve with time. You might make a bad decision and have to course correct — that’s normal. However, you don’t want to make decisions that have a meaningful impact but cannot be easily changed even if they result in unforeseen downsides. To correct them might mean pulling resources (money) away from something key or require a major change to the firm’s philosophy to accommodate.
This is such an important topic in our industry, and one that has no easy answers. If you have solved this problem within your firm, please write in to tell me your story of success.
Beverly Flaxington co-founded The Collaborative, a consulting firm devoted to business building for the financial services industry, in 1995. The firm also founded and manages the Advisors Sales Academy. The firm has won the Wealthbriefing WealthTech award for Best Training Solution for 2022, 2023, 2024, 2025, and 2026. Beverly is currently an adjunct professor at Suffolk University teaching Executive MBA students Leadership and Managing Teams. She is a Certified Professional Behavioral Analyst (CPBA) and Certified Professional Values Analyst (CPVA).
She has spent over 25 years in the investment industry and has been featured in Selling Power Magazine and quoted in hundreds of media outlets, including The Wall Street Journal, MSNBC.com, Investment News and Solutions Magazine for the FPA. She speaks frequently at investment industry conferences and is a speaker for the CFA Institute.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.