Structuring the compensation strategy for your financial planning firm is one of the most vital areas for firm owners to address to sustain a successful growing firm year after year.
Set your compensation too low, and you can end up with a bunch of average performers who do not do anything to move your firm forward, and risk doing irreparable harm in some cases. Set your compensation too high, and you might wind up with a team full of people who are solely motivated by money and do not fit the culture of your firm, nor believe in the mission and vision you have set forth.
To deal with this issue, some firm owners take a stab at developing their own compensation plan. Others hire compensation experts or practice management consultant types. Others ask what their peers are doing and try to duplicate it, and still others rely on the handful of salary surveys that are published annually.
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In our work with over two hundred financial planning firms, we have witnessed successes and failures using these approaches. Here are some of the pitfalls associated with salary surveys.
The genesis of the salary survey started over a decade ago with the Moss Adams Compensation and Staffing Study, designed to assist firms in gauging business performance in relation to their peers, as well as guide leadership in making better financial and business decisions.
It was the beginning of “big data” for the financial planning profession, and it has been a useful tool for decision makers, considering it was not that long ago that a “big” firm was characterized as one that had $100 million in AUM. Now, “big” is over $ 1 billion in AUM.
Nonetheless, we find that a growing number of firms are taking a problematic view in using these studies. Here are some things to watch out for if you decide to use one of these types of studies:
Limited sample size. Depending on the study, participation can be anywhere from a few hundred firms to around 1,000. Although this is growing each year, it still pales in comparison to the estimated 40,000 federal- and state-registered investment advisor firms that could participate, and the 200,000-plus advisors at independent broker-dealers.