Even though the Great Resignation has typically had its greatest effect on lower wage earners in the restaurant and hospitality industries, financial planning firms are not immune. In turbulent times such as these, firms need to ensure they are on target/closely monitoring the compensation structures to decide if a revamp/adjustment is necessary.
In this month’s article, we will review the most common compensation models for new financial planning professionals just starting out. The below models assume the role is a W2 employee in a Registered Investment Advisor, and are in paraplanner or associate planner roles that are responsible for financial planning support and not primarily doing business development.
Pros: This is the most simple and straightforward to set and administer from the owner's perspective. If you need help determining salary amounts, you can go here to download the New Planner Recruiting 2021 Salary Report, which includes ~200 data points we collected recently from job seekers on what pay level they are seeking.
Cons: Doesn't incentivize team members to deliver results beyond basic job responsibilities, which is why it is the least common structure we see.
Salary Plus Commission
Pros: Most common in the hybrid RIA broker-dealer affiliation model, but also utilized by fee-only RIAs as well. Provides a guaranteed minimum amount each month, combined with upside potential if certain products and/or services are sold and generate revenue in addition to the core support-oriented job duties.
Cons: Can create a conflict by incentivizing the promotion of products and/or services that aren’t necessarily a fit for the client situation, and/or ‘distract’ the team member from the support work they’re supposed to be doing for their lead advisor as well. Can be difficult to administer due to the burden of keeping up with pay-out grids, schedules, rep codes, etc.
Salary Plus Bonus
Pros: Probably the most common structure in the RIA channel. Provides a stable monthly base wage, plus upside potential if efforts produce returns above and beyond basic job requirements. A typical bonus structure can be anywhere from 5% - 25% of the base salary amount. Can be set as discretionary, or formulaic, by firm leadership.
Cons: Can easily become overcomplicated, and team members don't see it as a benefit if the metrics are solely based on the firm’s performance that they have little to no control over (e.g., profit, revenue, aum, new clients, etc.). Many firms settle on a combination of firm factors, but also individual factors (e.g., plans completed, client development, client retention, exams passed/certifications gained, training completed, etc.).
Salary plus fee split
Pros: Utilized frequently in the fee-only RIA and hybrid RIA structures. Incentive for team members to perform activities that generate additional revenue for the firm, and participate financially in the growth of the firm’s revenue base. Creates built-in incentives for ongoing client retention since fees will stop if the client leaves. Also builds in team member retention as more longer-tenured employees may find it more difficult to walk away from built-in recurring income stream to join another firm if clients stay at the original firm.
Cons: Can create a significant revenue stream for team members that, once it builds up over time, can actually disincentivize them to continue to go above and beyond their basic job requirements. We have seen new client development/servicing splits pay up to 50% of first year’s fees with zero residual payments, all the way to no upfront fee but 50% fee split in perpetuity, and many other structures in between.
We hope these were helpful for when you are determining how to establish your comp plans and/or revisit them based on the ever-constant changing workplace environment. Dialing in employee compensation is crucial to attracting and retaining top financial planning talent in this very competitive talent market.
Contact us if you would like to ensure everyone on your team is the right fit for your team, operating at their highest and best use, and aligned with your mission and vision.
Caleb & The New Planner Recruiting Team