Are Advisors Really Just After The Money?
Some less than altruistic observers contend that advisors are only after the money. Hence, these enemies of advisors say, when advisers are paid a lot, they are happy and want more; when they earn the bare minimum, they slink away to oblivion — because “they were only after the money,” right?
Some data in the 2014 U.S. Financial Advisor Satisfaction Study from J.D. Power suggests there’s more to the story. Advisor satisfaction improves when the compensation package is “competitive, clear and rewards appropriate behaviors,” the researchers said.
The clarity factor is so important that, among the 36 percent of advisors who lack a complete understanding of their plan, compensation satisfaction was “significantly lower” compared with those who reported having a complete understanding. On a 1,000-point scale, the measure was 631 versus 781, respectively, for a difference of nearly 24 percent.
That bears some consideration, since the survey group was of good size — it included nearly 4,000 financial advisors, both employed and independent — and since J.D. Power is a financial researcher focused on consumer experience, not a financial provider with a particular compensation axe to grind.
Of course, advisors’ satisfaction with their work is swayed by factors other than compensation. The researchers studied some of these other factors as well, such as firm leadership, advisor/professional support received, customer support, etc. But we zero in here on satisfaction with compensation, because the finding seems antithetical to the views of people who believe advisors can never ever have enough comp to satisfy.
It looks as if, in firms with transparent compensation practices that stay competitive, comp is an important part of job but it’s not the whole package or even the center of the package.
This broader view of advisor compensation didn’t just jump out of the sky. Two years ago, a similar study from J.D. Power found that, even among advisors who receive lower payouts than industry averages, satisfaction was high if their firms were adhering to best practices in areas such as firm performance, technology, compliance and administrative support.
This year’s survey was taken in early 2014. So the comp satisfaction levels may have been influenced by this year’s record-breaking stock market performance. Even so, that doesn’t negate the correlation the researchers found between improved satisfaction and a competitive, clear and appropriate-rewards environment.
Sometimes leaders in the field complain that advisors carrier-hop and distributor-hop just for a slight bump-up on comp. To the extent that this happens, it injects competitive pressure in the distribution stream. This ultimately affects which products are available where. Or it can trigger the equivalent of a gas-price war environment, producing rocky times for all concerned.
Perhaps, when distributors get wind of comp-hopping, that might be a good time to ask some survey –inspired questions such as: Do those advisors have a clear understanding of the compensation package? Do they have reasons other than money for what they do? Are they high performers? If the answers are no, it’s pretty clear what to do.