When Advisers Demand Incentive-Based Pay

Following on from my most recent white paper, If Incentives Worked We’d All Be Amazing By Now (Why modern financial planning firms don’t need incentives), what I’m hearing from the coalface is that some up-and-coming advisers are asking for (demanding) incentive-based pay. 

They want to get paid the traditional way advisers have been paid in our industry – via a percentage of the revenue they bring in or manage. 

Of course, they do! 

But you don’t have to respond to those demands – at least not in the way you’re thinking (by acquiescing). 

What some advisers are asking for is a variation of the following:

Most adviser remuneration schemes across our profession pay a small base salary and then reward advisers for a percentage of the revenue that they generate or manage. 

E.g. Base salary: £40,000

Variable Component: 35% of all revenue above £120,000 (3x qualifying level)

I’ve talked at length in my recent white paper about why I hate incentives (in 99% of cases) in modern financial planning firms and why they don’t usually work. 

But in the example remuneration package above, there’s an additional reason I’m not a fan – you’re creating a future headache. 

While some advisers want the benefits of a variable pay scheme (i.e. they can see the long-term upside), this approach fails as an incentive scheme in my view for one key reason:

Variable pay (as opposed to base pay) needs to be re-earned in each pay period.

With more experienced advisers on this type of pay package, when they have built a mature client bank, most of their revenue is ongoing (not new). So most of their pay is not being re-earned in the next pay period.

In many cases, longer-serving advisers feel they make enough money under this remuneration arrangement, and effectively it becomes a disincentive scheme. And many business owners have moaned to me about advisers on this type of package who choose to work 3 days a week, rather than work harder to secure more clients.  

So rather than simply acquiescing to the demands of advisers wanting to maintain the status quo, I suggest getting creative and getting adviser remuneration right.

Your approach to remuneration needs to be a Total Rewards Strategy (you can find the full explanation in the white paper). One important component of that is:

Relational Rewards

• Recognition and status
• Employment security
• Meaningful and challenging work
• Informal learning opportunities

It’s not about the salary or remuneration package on its own.

Most people are more motivated by the things on the list above than money. 

And remember, we want to hire patriots, not mercenaries. That means we are looking for all team members, including our advisers, to buy into the real mission of the business, which is typically “making a difference” to the clients that we choose to serve. 

And in my experience, all great financial planners have that mindset. Sure, they like to earn and they like to be appreciated for their skills and knowledge. But money, in and of itself, is not their motivator. 

Career progression for advisers

Up-and-coming advisers need to do the work and learn the skills to be able to progress in their careers.

If you’ve properly crafted your pay structure for the adviser role, it’s likely to contain multiple levels.

For example:

• Trainee adviser
• Newly qualified adviser
• Shadow (or support) adviser
• Servicing adviser
• New business adviser

At each level, you can outline the qualifications, skills and behaviours you would expect an adviser at that level to demonstrate. You would also include wide pay ranges to allow you to appropriately reward low, average and high performers at each level. 

If a servicing adviser wants to move into a new business adviser role, you shouldn’t simply let them loose on your new leads to practice and develop their skills. There needs to be a training and development programme that allows them to develop the high level of soft skills required to be great in this role. 

Think of it like developing and training a pilot – there’s quite a high level of skill that needs to be accumulated before you allow them full control of the aircraft.

If they are prepared to learn the skills (and that requires study, training, observation, role play and eventually some practice on real clients), then they can move up. But they have to show a willingness to learn and grow first. 

Your job is to support their training and development and ensure they can progress as quickly as possible. Most firms lose good young team members over a lack of progression, not a lack of money (although it often presents as a request for more money).

If you’ve upheld your part of the bargain by providing training and development, and it’s still not enough for your up-and-coming adviser, then unfortunately, you probably need to part company. 

If I were parting company with a younger up-and-coming adviser that I thought had real ability, but for now, we just can’t see eye to eye on their remuneration, I’d be taking the long-term view. 

Typically, someone who wants this type of pay packet (assuming you can’t dissuade them) will be lured away by an offer from another firm that is willing to meet their requests for variable remuneration.

How is that likely to play out?

I’ve got to be honest, the odds of them landing in a brilliant, happy home are really low. Other good financial planning firms like yours won’t be offering the variable pay package either. So the contenders for meeting their demands are typically old-school salesy firms. And as we know, the culture in a lot of these firms is all wrong, and your up-and-coming adviser might get a rude shock. 

So when they leave my firm, I’d throw them a leaving party with balloons, champagne, the lot. And I’d make it clear that if things don’t quite work out as they hope in their next move, the door is wide open for a return. 

What you’ll find is that the right people come back to you, and the ones who are happier in that alternative culture have made the right choice for themselves and for you. It’s all good. 

Remember, when it comes to managing your team, you are 100% responsible for your 50% of the relationship, and they are 100% responsible for their 50% too. I’m ok with people asking for what they want, but I also want to see them putting in 100% effort on their side of the fence. 

And if we can’t reach a middle ground, then c’est la vie. We part company. It’s got to be win/win or no deal.

Hopefully, this blog gives you some food for thought when it comes to pay discussions with your advisers.

Let me know how you go.

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