Insights | 01.03.19
Firms Consider More Extensive Base Pay to Groom New Talent
For the generation of college students enthralled by Oliver Stone's "Wall Street," the notion of eking out a year or two on a paltry base salary was acceptable, provided it meant a foot in the door at a firm such as Dean Witter or Smith Barney.
But it’s not the early '90s anymore. Those days — and those firms — are long gone, as are the old-school "eat what you kill" models that long prevailed.
In recent years, the best and brightest new advisor candidates have been balking at puny base salaries tied to incentive-based rewards to come. Now, newly published compensation research, as well as interviews conducted with industry executives, suggest that associate advisors will increasingly command higher guaranteed earnings.
"The days of the financial institution providing a low base salary and any additional earnings paid at the whim of the senior advisor are fading away," said Peter Bielan, a co-author of "Trends in Associate Advisor Compensation Plans."
The study, conducted by Kehrer Bielan Research and Consulting in collaboration with Cetera Financial Institutions, found that while 40 percent of firms surveyed had an associate advisor role in place, the total number of these types of professionals only comprises about 5 percent of the total financial institution sales force.
The stagnating farm team of new advisors is routinely mentioned as the biggest problem facing bank-channel advisors. According to data from the FINRA Advisor database and annual reports, there are 32,888 (5 percent) fewer licensed advisors than there were seven years ago. The number of available FAs is dwindling, or what Bielan calls "a supply/demand mismatch."
“Patience and Accountability”
The time has come to at least contemplate more types of compensation plans that include attractive base salaries — and not just for the first year but for up to three years, said one bank executive, pointing to the difficult nature of these conversations when it comes to convincing top-decision makers.
Giving junior advisors a clear path ahead factors heavily in Webster Bank's overall growth strategy, said John Olerio, director, senior vice president, Webster Investment Services.
"We look to recruit and retain talented people who have tremendous promise for the future and can be successful for the long term," Olerio said. "And that means we need to invest in them now."
Webster's approach can be best described as a "blend of patience and accountability," Olerio said, explaining that associate advisors are held to an agreed path that involves a series of incremental milestones for business growth.
Adding Up Advantages
Thinking about creating or expanding an associate advisor program to complement more senior people? The Kehrer Bielan/Cetera report cited a laundry list of compelling reasons to go forth by noting how such programs:
- Reduce the senior advisor’s bloated books by moving smaller and high-service-needs clients to the associate advisor
- Start new advisors with lower-dollar and less sophisticated clients
- Improve productivity by having the associate advisor handle operation and administrative tasks for the senior advisor, enabling senior advisors to focus more time on wealthier clients
- Train associate advisors in techniques used by proven top performers
- Increase the hiring talent pool because the qualifications are more common and salary ranges lower than when hiring experienced advisors
- Improve relationships with the retail branch staff because of increased coverage.
- Add a new advisor with incremental revenue
"Because of the shortage of experienced advisors compared to the demand in the market, associate advisors are one of the best talent acquisition plays available," the report said. "The modest compensation costs of an associate advisor coupled with leveraging the skill of a senior advisor and greater talent pool available makes the associate advisor role attractive. Due to these reasons, we see the current environment as an ideal time for financial institutions to make adding associate advisors a core strategy for success."
Several successful associate advisor compensation plans were described in the study. The authors illustrate the variables needed to make the plan effective.
In one example, a base of $24,000 is paid plus an additional recoverable draw of up to $16,000 (depending on the production level of the senior advisor with whom the associate is paired). A second example features not base salary per se but a "forgivable draw" ranging between $35,000 and $45,000, depending on the background of the candidate (a complete greenhorn versus having some relevant experience). In yet a third example, the associate advisor is paid a base salary of $50,000 for two years.
Strategy for Success
Hiring and retaining advisors can be a big challenge for today’s financial advisory firms. Find out some other strategies for preparing FAs for the future here.
Rich Blake A veteran journalist based in New York City, Blake has covered the financial world for numerous publications, including Institutional Investor, ABCNews.com and Reuters. Blake was a co-founder and executive editor of Trader Monthly magazine. The Buffalo native is the author of three nonfiction books, including “The Day Donny Herbert Woke Up,” which is currently being adapted into a motion picture. In 2004, Blake was nominated for a National Magazine Award in the Reporting category for Institutional Investor.