Team Compensation Structure

There are two great risks to any team compensation structure. The team underpays excellence and/or the team overpays mediocrity. Let's talk first about underpaying excellence. It's easy to undervalue a team member's talent and motivation without meaning to do so. In an industry where it's hard to stand out from your competitors, having team members with exceptional talent and the motivation to secure and engage with top clients and address their complex challenges is huge. Sadly, most team compensation plans aren't dynamic enough to capture excellence that falls outside of pure rainmaking activities. You don't ever want to lose your best team members due to a static compensation plan that doesn't reward excellence. On the flip side, we encounter a significant number of situations where the team is overcompensating mediocre performance. Perhaps the team paid up to bring a talented individual into the team, someone with the knowledge and skill to do the work, what they didn't know was that that person lacked the motivation. Nothing destroys the morale of a team faster than having a team member not pulling their weight, yet who is being paid as if they are. As we consider team compensation, our goal is to help you to develop a dynamic compensation plan that pays attention to and fairly rewards the results of the work being done. A compensation plan that recognizes those team members engaged and doing the work will affect the morale and long-term success of your team. The best compensation plans are objective, dynamic in their structure, and fair.

Compensation plans work best when you're partnered with the right individual. If you're considering adding a partner to your practice, we find it wise to test the waters before joining your practice. Testing the water is like dating someone before deciding to marry. Do you share values, work ethic, and a vision for the future? Are you willing to communicate and have hard conversations? This dating phase, as important as it is to creating a financial partnership is actually the second step of a three-step process. The first step is to explore whether the two of you are philosophically aligned. Do you share the values? Do you agree how your partnership will benefit and serve the client? How working together will leverage your individual strengths make you better together than separate. You know it's wise to determine one, what are the advantages to the client? Two, the advantages to your individual practice. And three, the anticipated lift your partnership will bring you personally. If that all resonates, then you begin step two, you implement your proposed partnership without completely moving in together. This is the dating phase I mentioned earlier. It labels the process of bringing your practices together with a select number of clients and prospects, to see how you do working together. Now, this dating phase can easily last 12 to 18 months. You want to give it enough time to determine whether the partnership is more work and effort than it's worth, or you become convinced this partnership delivers on your mutual expectations. You find it's great for your clients. It's great for your practice. And it's great for you. You will find that partnering gives you energy rather than drains it from you. The best partnerships allow each partner to spend more time engaged in what they do best. If the dating phase reveals your partnership adds no value to your clients, your practice, and you personally, then split the accounts you shared and go your separate ways. However, when you find true synergy, then the marriage of your two practices makes sense. With that decision, then you move to step three, bring your practices together, formalize the structure, make the announcement to all your clients and begin this exciting phase of your career.

The proliferation of partnerships and teams in our industry requires us to revisit our compensation structure. Historically a sole practitioner was compensated for trading activity and assets under management. Success in our industry has always been difficult but the compensation structure has been simple. The more assets and revenue you brought in, the higher your payout and net take-home pay. However when building a team this rainmaker model has its challenges especially when the very reason you've partner is to offer your clients a broader wealth management experience and to offload the parts of the business you don't enjoy to a partner who unlike you either enjoys or is ambivalent about those same responsibilities. As you move towards a synergistic team structure that serves your best clients you must reorient how you will define and compensate a variety of wealth management roles. Roles that will drive the team's overall productivity both directly and indirectly. It's certainly important to attract new business to the team but is that more important to your success than constructing and executing a high-quality client experience or providing complex planning or managing your investment models in a volatile market? We believe the correct answer is, it's a tie. Team compensation becomes the primary challenge for partnerships. How does a team measure and compensate partners whose primary responsibility may not be rainmaking activities? And that's the challenge. Without an objective way to measure productivity, the team leadership defaults to subjectivity. How they feel someone is doing, or they modify someone's compensation out of fear they will leave. Subjectively determined compensation plans easily get out of sync, and end up underpaying your excellent performers and overpaying your vocal yet mediocre performers. Few partners spend the time to agree upon under what objective criteria will the split on compensation be based? And how often will we look at the criteria and make a change? A team's compensation plan must be dynamic, objectively measured and fair.

So, let's consider the variables to constructing a long-term team compensation structure. Movement towards parity, objective criteria to measure activity not just results and a balanced approach to rewarding rainmaking results, wealth management and the service required for distinct client experience. Let's consider each of these individually. The concept of Movement towards parity is about fairness. Team members want to be paid fairly for their contribution to the success of the team. Common examples of this is how the team addresses the disparity and splits between a junior advisor and their senior partner. If the junior advisor evolves in their skill, competence and success, Is the team clear on how the junior advisors progress and their success will positively be impacted by the split? Is it possible for them to move towards parity with their senior partners? We find that compensation plans must be dynamic enough that they reward excellence and encourage this hard work and successful effort. The second variable we find in strong compensation plans is that they use objective criteria to measure activity as well as results. Rainmaking activities are simple to measure because well, the firm provides you net new assets, new households in revenue numbers. However, has the team set expectations and established a system, to measure a junior advisor's contribution to the team. Are their results focused on client reviews, meeting the service needs of the clients, or taking responsibility for client events and seminars? While these activities may generate future revenues, the junior advisors efforts to successfully fulfill these activities now, should be measured, recognized, and rewarded when goals are met. A team that has clarity around how delegated roles and responsibilities will be objectively measured, improves their capacity to coach a struggling team member who may not understand their role and responsibility. It also helps the team member stay focused on the work they should be doing. And holds them accountable for the expected results of those efforts. Teams that establish clarity around the expected activity and not just the results, make it difficult for an unmotivated team member to hide or become derailed.

The third variable to consider when constructing your long-term compensation plan is how the team wants to balance and reward rainmaking activities with other areas of expertise and the service required for the team's overall performance and success. Teams that compete as value providers understand the need for subject matter expertise. And a service model that anticipates the clients' needs and makes it easy for them to do business with you. The growth of a team can come as much from a superb client experience, which keeps and grows your current clients, as it does from traditional rainmaking activities. Recognizing and balancing the team's deliverables and client experience with rainmaking activities, rewards and engages each team member in the role and the fulfillment of their responsibilities.

- Thank you for your time. I hope you found it informative. if you have any questions or for more information on this for other programs from Invesco Global Consulting, please reach out to your Senior Advisor Consultant. Thank you.