03.21.19
Measuring the Costs of Fresh Talent
by: Rich Blake
The cry for a more accelerated youth movement in the financial advisory space keeps growing louder. Whether to augment a graying team amidst changing demographics — or to shake up a talent roster based on cost effectiveness — the push is on within the industry to fill lower-rung roles, such as associate advisor and relationship manager.
But, when infusing young blood, as Kehrer Bielan and Cetera Financial Institutions asked in their recent report, "Trends in Associate Advisor Compensation," just what should these individuals get paid? And how does a financial institution know that it’s getting these figures right?
Schwab's latest survey of compensation at RIA firms is a useful measuring stick in terms of defining what can be considered appropriate. The study looked at data from some 900 firms and found the median all-in pay for junior relationship managers was $102,000. About 20 percent of that total is incentive pay, with the rest being base salary.
By way of comparison, the Kehrer Bielan/Cetera research floated several compensation models for associate advisors. Setting aside some apples/oranges considerations, there was one example (the higher base-salary model) suggesting these positions should start at $50,000 base for the first two years, with incentive pay sliding upward (and base downward) in year three. The Kehrer Bielan/Cetera report estimated a range of first-year employee compensation costs, excluding benefits, at various production levels.
All-in associate advisor compensation levels can range from $43,740 up to $68,750, according to Kehrer Bielan/Cetera.
A Useful Reality Check
A role defined as "support advisors" was studied by InvestmentNews in its 2017 Adviser Compensation & Staffing Study report. The InvestmentNews survey of 353 firms was conducted in the spring of 2017. Median total income for the support advisors: $68,450. Yet another entry-level role was examined, that of "client services administrators," who earned median compensation of $57,000.
Commercial bank relationship manager compensation seems, in some cases, to be climbing in a tight labor market. A current check of some employment websites and job listings show various commercial banking relationship manager opportunities offering total compensation upwards of $80,000.
Off-the-record interviews with two banking industry members, both on the front lines, proved a useful reality check. They suggest base salaries currently range from $40,000 to $60,000, and incentive pay, tied to referrals, hovers between $10,000 and $15,000, with some exceptional producers hitting higher bogeys of as much as $25,000.
These conversations with the bank channel reps (both carried business cards that read "relationship manager") illuminated one of the qualities common to exceptional earners: being in the role long enough to really know the customers. It’s a bit ironic, given the lower-on-the-totem-pole nature of the role of relationship managers and the push for newer, younger hires.
One of these two interview subjects was just out of college and working at a large, national player; the other was decades out of college and had just departed a large regional bank in the midst of expansion.
The latter source shared some interesting information in terms of how incentive pay was structured. Quarterly bonuses were tied to revenue on product sales stemming from referrals. Goals were spread out across a range of products, including mutual funds, annuities, mortgages, home equity loans and credit lines. In one sample quarter, recently, the more senior relationship manager reached a bogey of $75,000 in new quarterly revenue. That netted, via a 3 percent payout, about $1,800 in quarterly disbursed bonus pay.
Interestingly, both bank reps said that they were not being encouraged to pursue Series 7 designations, that the model in which they operated had them handling foot traffic on the front
lines — in many cases, elderly people needing help with myriad issues from the utterly mundane to the much more complicated — and thus in all instances merely made referrals to someone more senior.
The younger rep was satisfied with total compensation, given that it was a first job after graduation and already allowing for a pretty comfortable lifestyle. But at the same time the rep, feeling the limitations of the role, was thinking of doing something completely new in terms of longer-term career path. By contrast, the older rep had just exited the industry after many years, having felt, frankly, shoved aside amidst the bank's emphasis on bringing on younger workers who will accept a lower base salary. But, of course, this carries its own cost: Greenhorns do not have the kind of deep product knowledge that gray-hairs do, nor the customer relationships.
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.