The implementation of the Department of Labor’s Fiduciary Standard for qualified retirement investments is causing firms to consider changes in the way they compensate their Financial Advisors. The DoL Rule seeks to eliminate conflicts in the way Advisors are paid which might encourage them to provide advice that is not in the best interest of the client but provides higher commissions or fees to the Advisor. Paying commissions from IRA or retirement accounts is generally prohibited, unless the firm executes a Best Interest Contract Exemption with the client or the transaction falls under the Principal Transaction Exemption.

Firms are exploring alternatives to the traditional commissions-for-transactions model, including paying on assets instead of revenue, equalizing commissions across each class of investment products, and even paying Advisors a salary and a bonus based on performance. The DoL Rule provides a once in a generation opportunity to assess how a firm compensates Advisors and depart from the traditional structure.

The current structure of Advisor compensation plans has been in place for 20-25 years. As each successive executive was given responsibility for managing the institution’s investment services business and shaping how it pays Advisors, they did not start with a clean sheet of paper. Instead, they looked at the plan that was in place and tweaked it in ways they thought would be improvements, e.g., adding more thresholds or grid levels, changing the payout at each level, or rewarding more for certain kinds of revenue, etc.

This was also the structure that Advisors expected. So firms were leery to make any radical departure from this structure and risk an exodus of Advisors from the firm. Faced with the strictures that the DoL Rule imposes, investment services firms in financial institutions now have the challenge, and opportunity, to start with a clean slate. All firms face the same constraints, so the fear of Advisor attrition in response to a major compensation change has lessened.

But before the traditional compensation plan is relegated to the dumpster, it is imperative to know which elements of it are keepers.

This report will help to determine which of the components of Advisor compensation are worth fighting to keep when designing the post-DoL plan because they influence Advisor behavior in ways that align them with the objectives of the firm and the needs of clients.

Kehrer Bielan has examined how the detailed elements of Advisor comp plans in 61 financial institutions impact Advisor productivity, acquisition of new assets, profitability, Advisor recruitment and retention, and other objectives of the firm.

Price:

  • Fewer than 24 Advisors: $200
  • 25 to 100 Advisors: $350
  • More than 100 Advisors: $500
  • Product & service providers: $1,000