How to Create a Compensation Plan for Your Advisory Team
When your team members have outgrown the salaries they started with as they start to bring in assets and new clients, the challenge for you, as a leader, is to compensate them in a fair way with no perverse incentives — especially when you have a team with varying roles and levels of experience. To make it easier to provide examples, let’s assume you oversee a team of three: one associate and two wealth advisors.
This structure is intended for a full client-facing team serving a defined group of clients. It’s a catch-all combination of compensation components that motivates a team to maintain great relationships with all clients, regardless of who sourced them; build strong relationships with referral sources; proactively contribute to the growth of the firm; and help each other succeed.
Four Compensation Components
1. Salary
2. Revenue-based payout
3. New business bonus
4. Profitability bonus
Determining each component will require an iterative approach, as each will independently contribute to the whole compensation package.
Salary
Salary is the component that you can keep private, as it will be different for each team member depending on their experience and role.
Revenue-based Payout
The payout based on ongoing revenue rewards everyone for retention of all existing clients, new assets of existing clients, and new client assets. This piece will be a percentage of revenue for the team, divided up to represent their respective roles. For example, assume the payout is 10% of revenue, and each team member gets X% of 10% based on their role on the team. An associate (the most junior role) might get 10% of the payout (1% of revenue), while the wealth advisors each get 45% of the payout (4.5% of revenue).
New Business Bonus
The new business bonus rewards new client acquisition. If you want to encourage proactive efforts, put a minimum on it. Determine what you think "proactive efforts" means.
Three new $1M clients for a total of $30,000 in new revenue in a year might be the result of simply serving clients. But eight clients for a total of $80,000 in revenue might indicate a proactive growth mindset.
Pay out a percentage of that new revenue as a one-time bonus — say 10% — to all the team members, again, according to their role and experience. The simplest strategy is to assign the same proportions used in the revenue-based payout. If less than $80,000 is brought in, there's no new business bonus, but the team is still rewarded for the new revenue with the revenue-based payout. If they stretch and bring in significantly more — say $120,000 — then pay the team a one-time bonus of 20% on the entire amount of new business. You'll be amazed at the flurry of business development activity in the last quarter!
Profitability Bonus
A bonus based on firm profits works best if you are sharing company financials with your staff regularly and helping them see how revenue and expenses affect the bottom line. Because this figure is affected by everyone in the firm, this component should be applied to all team members, whether client-facing or back-office. If your firm offers a 401(k) plan, you could make this a non-elective contribution.
Creating a Buzz
You might find that this compensation model creates a buzz that feeds on itself among your client-facing team members throughout the year each time new assets come in. Reinforce this virtuous cycle by adding a celebration for specific milestones throughout the year. Acknowledge the team is on track for the $80,000- in-new revenue example above by celebrating a $20,000 quarterly milestone. I like a nice bottle of champagne ... but a nice lunch out for the team will do just as well.
Tweak the thresholds and percentages to fit your situation — but in any proportion, these compensation components reward client retention, a proactive growth mindset, a cohesive team spirit, and firm success.
What compensation model is working well for you? Do you see other challenges that need to be addressed?
