Perhaps more than any other industry, the financial advisory business is keenly attuned to benchmarks. You carefully watch major indices, craft investment portfolios to mirror or exceed certain benchmarks, and comb through the latest economic reports for signals. It’s only natural, therefore, when it comes to compensation most advisors would look to benchmarks in hopes of comparing their firm to what their peers are doing.Don’t get me wrong. Benchmarks can be valuable tools as the popularity of the FPA’s Trends in Adviser Compensation and Benefits Survey as well as Investment News’ Advisors Compensation and Staffing Survey attest to. But truth be told, far more insight can be gained from looking within rather than looking at others.
I talk with advisors all the time who spend exorbitant amounts hiring compensation consultants to come in provide them with a long, detailed analysis and recommendations. And what they’re ultimately told is precisely the same thing I’m telling you right here, right now…go and pay your people for the specific outcomes you want them to achieve.
If you want new assets, then pay for new assets. If you want new client relationships that are of a certain type or size or complexity, then pay for those qualities. If you want people coming in to the office with a positive attitude and working in a collaborative, interdependent manner, then pay for that.
Don’t fall into the common trap of tying compensation only to assets and fee revenues, or assuming that compensation must always be financial. Keep in mind that different people are motivated by different things. Some people are motivated by money, but others may find more value in an extra day off or tickets to an event.
Ask yourself, “What is it I need the business to achieve? What therefore should be the objectives of the team as a whole and each individual team member? What are the behaviors and outcomes that I expect the business to achieve and each member’s role?” Then put a specific value to those behaviors and outcomes to formulate each individual’s discretionary component. Be clear and transparent as to your expectations and measurement criteria. And be prepared to pay people well for achieving those goals.
Making the intangibles tangible
A lot of advisors feel challenged in aligning compensation to behaviors that don’t instinctively seem as easily quantifiable as assets. But measuring someone’s positive attitude, their collaboration, or their leadership and participation in team meetings is not a difficult thing to do.
At ClientWise, we use an application called StatusPath. It allows our team to coalesce around corporate objectives which include certain behaviors as well as financial outcomes and other non-financial expectations (e.g., increasing the number of blog views or generating a certain number of leads from a campaign) as well as winning new business.
The application allows each team member to have his/her own locker box where we can give direct feedback to each other online. When I sit down on a regular basis with team members to give them direct feedback from a collaborative perspective, those perceived intangibles quickly become exceedingly measurable. It’s a simple and inexpensive tool that really works for us.
All you need is a willingness to have direct, honest communications and a desire to create a culture of transparent communication where there’s a clear outcome that’s desired, where core values matter, and where:
- Every team has a set of values and agreements about how it will operate
- Every team has defined objectives and financial goals they hope to achieve
- Every team member has their own set of personal objectives and goals that roll up to firm objectives and goals.
With that in place, you’ll have a compensation structure that’s highly aligned, very transparent and consummately measurable. And your team WILL respond. If I know that I’ve got a bonus on the line that’s in part based on my ability to lead team meetings, collaborate with my peers and be open, honest and friendly, rest assured I’m going to do everything in my power to make sure I exhibit those behaviors. But it won’t work if you don’t use it – every week you’ve got to measure progress.
Coaching Questions from this article:
- Aside from asset gathering, what behaviors and characteristics of team relationships that most contribute to your team’s success?
- How effectively does your current compensation structure incent those behaviors?
- What steps will you commit to taking to better align the two?