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May 01, 2023

Cards Face Up

Are you tired of senior management acting like they’re the smart ones, and advisors are simple-minded? Frankly, I’m beyond tired. It infuriates me because it showcases their unapologetic arrogance.

I ask myself, do we not both work for the same company? More importantly, do we not both serve the same clients and investors? Then why manipulate advisors when compensation plans are reengineered? Advisors want to be told the truth. If the board wants a 25% profit margin, and the only practical way it can be achieved is to reduce advisor compensation, then give it to the advisors straight. Be decisive and transparent.

Keep it simple and just lower the grid 1%. Yes, that’s painful, but it’s a better alternative to announcing a new cockamamie program entitled “Growth Grid Reduction,” and adding eight more pages to the existing 45 page compensation booklet.

Why not go one step further? Tell the advisors why the board wants profit margins of 25%. Of course, it may lead to advisor attrition! However, the attrition will be measurably less because forthright communication is confirmation the company is being led by highly principled executives. Remember, the best advisors are shareholders, and benefit from excellent stewardship by the key decision makers.

While compensation is an obvious example of how management needs to put their cards on the table, another critical topic is how resources at the branch level are allocated – like client associates. How much revenue does an advisor need to generate to be assigned a 1:1 client associate? How much revenue does an advisor need to generate for two client associates? Is the policy transparent and evenly applied? Too often, the lack of clarity creates an apparent lack of fairness that cannot be rationalized!

Increasingly, a number of advisors are moving to boutique private banks and independents. The best of these organizations are run by executives who don’t suffer from arrogance, and genuinely believe in transparency and forthright communication. They build true partnerships with their advisors, and both will prosper together!

Some executives, however, will fall victim to the same mistake of the big wirehouses, and act like they’re the smart ones and advisors are simple-minded. Sadly, when management doesn’t put their cards on the table face up, advisors will pick up their chips (i.e., their clients) and walk away.

Paul Sullivan
Founder & Managing Partner
Wealth Management Independence