Do incentives actually work?

In almost 35 years in our ever-changing profession, I’ve seen all sorts of incentives put in place in the belief that this will make people do a better job, or keep them focused on what really matters.

This belief that incentives are an important part of motivating people (particularly in selling roles) is almost part of our profession’s DNA.

But what if incentives don’t do that? (Blasphemous, I know)

Could our beliefs be misplaced, or just completely wrong? What then?

The evidence shows that incentivising your team may actually lead to outcomes that you don’t want, and fail to achieve the outcomes you thought you did want.

Maybe it’s time for a change of approach. After all, we’re rapidly becoming a profession and trying to build genuine professional services firms. And in those types of businesses, there’s only one goal: Do what’s best for the client every time.

The BIG question is: Do we need incentives in place to get the people who work in our profession to do that?

In fact, is it even possible to incentivise people to behave in that way if it’s not already in their nature to do so?

Or should we just hire people who already think and act in that fashion and forget the incentives?

My next free PFS Power webinar is on Tuesday, 18th November at 11:00 am. In it, I’ll walk you through my new white paper titled, “If Incentives Worked We’d All Be Amazing By Now (Why modern financial planning firms don’t need incentives)”. I’ll dive into when incentives do and don’t work, and what you can do about it as you contemplate remunerating your team appropriately. It’s slightly controversial, but oh so interesting. Register here.

Why should you care?

Remuneration is a powerful signal that communicates what we value, what we reward, and how we define success in our profession.

In financial planning, how we pay our people says more about our firm’s culture and strategic intent than any vision statement ever could. Yet, for many firms, remuneration structures remain largely inherited from an outdated model: the sales-first, volume-driven culture of the old insurance world.

The belief in variable remuneration and incentives (commissions, bonuses, performance-based pay) persists, often unchallenged, and is seen as essential to motivating performance.

But what if that belief is misplaced?

What if the very systems we use to drive performance are actually undermining trust, collaboration, and long-term value creation?

This matters for anyone trying to build a modern financial planning business. One that genuinely puts clients first, develops talented people, and scales with integrity. If we want to elevate our profession, we need to examine not just what we do, but how we reward those who do it.

Why Business Owners Use Incentives

In my work with owner-advisers I see two predominant reasons why they use incentives, or variable remuneration, particularly with their salespeople/advisers:

1. To minimise their fixed costs
2. To get people’s best efforts

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)

In the business owner’s mind, this is entirely sensible. ”I only pay for actual results”, they tell themselves.

However, ask yourself, “What’s the goal behind the goal?”¹

And the answer to that question I assume, is that business owners want their advisers to perform at a high level, generating lots of revenue from the right clients, and in a completely honest and ethical way.

Now ask yourself, does this approach seem like the best way to do that?

For Up and Coming Advisers

What I see in 90% of cases is newer advisers struggling along earning £60,000, when they really want to earn £100,000. They’re not happy.

The owner is also not happy. They want the adviser to produce the levels of revenue that would allow them to be paid £100,000 (from the right clients, and in a completely honest and ethical way), but typically, it’s not happening.

For Experienced Advisers

With more experienced advisers who have a mature client bank, most of their revenue is ongoing (not new). In many cases, these advisers feel they make enough money under this remuneration arrangement, so you could argue this is 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.

There are other issues with this type of variable remuneration strategy too.

Effectively, it rewards advisers for generating more fees, which doesn’t always align nicely with a ’client-first’ approach.

What if the best advice is no action?

What if the business doesn’t want to take on a certain type of client, but the adviser tries to push it through to maximise their earnings?

What if the bonus is paid quarterly, and so at the end of each quarter, the back office team get harassed non-stop as advisers try to squeeze through as many cases as possible?

We know that all of these things happen in advice firms. What we have to ask is:

• What impact is that having on the rest of the team’s morale?
• Does it create an ‘us’ and ‘them’ dynamic in the business?
• What impact is that having on the “whole-of-business” effort to deliver for clients?
• What complexity is it creating as processes get shortcut or skipped? As we know, a shortcut now often creates a “management debt” somewhere in the future.

(Management debt is the extra work created in the future by taking short-term shortcuts today. A decision may seem expedient in the moment but often leads to greater complexity and effort down the line, which requires more work to rectify or sort out – i.e. the management debt.)

I realise some people can navigate these conflicts of interest, but I also know there are plenty who can’t, and I wouldn’t want to take that chance if it were my business.

To genuinely get the best out of people is much more complex than simply putting in place some sort of incentive scheme or variable remuneration package. As the title of my new white paper* suggests, “If incentives worked, we’d all be amazing by now”. (*The white paper is going live on 29th October).

If you’re running (or building) a professional services firm that specialises in financial planning, I’m of the view that it’s difficult (maybe even impossible) to ‘incentivise’ high-performance through remuneration alone.

Many of our widely held beliefs around the power of and need for incentives are based on an enduring myth that flies in the face of 50 years of academic research. As author Dan Pink says, incentives can work, but in a surprisingly narrow set of circumstances.

What if you just:

• hired the very best people you can find
• paid them what they are worth
• removed the obstacles that stop them from making progress each day
• worked hard to ensure they have the opportunity to grow and develop, and to contribute to a mission they wholeheartedly believe in

Forget the incentives. Just focus on the real work of building a great team.

If you build a business that people aspire to work for because of its culture of fairness and transparency, you’ll be building a successful business with longevity.

You don’t need incentives.

My next free PFS Power webinar is on Tuesday, 18th November at 11:00 am. In it, I’ll walk you through my new white paper titled, “If Incentives Worked We’d All Be Amazing By Now (Why modern financial planning firms don’t need incentives)”. I’ll dive into when incentives do and don’t work, and what you can do about it as you contemplate remunerating your team appropriately. It’s slightly controversial, but oh so interesting. Register here.

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¹Reset: How To Change What’s Not Working by Dan Heath

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