How Should Advice Firm Staff be Paid?

Adviser remuneration has often been seen as a difficult issue. Should advice firm staff be paid a standard salary or should it be based on time employed, income generated at the firm or tied to metrics such as customer satisfaction? Firms often find it difficult to strike a balance between ensuring zero conflict of interest and incentivising advisers.

A Retail Distribution Review conducted by the FCA aimed to redress the balance by removing commission payments to advice firm staff. However, there continues to be wide disparity within the industry concerning the structure of advisers’ pay.

Advice Firm Remuneration

Research in 2017 indicated the average pay of an adviser was £89,522, and 30 per cent earn over £100,000. However, how advisers are paid varies from organisation to organisation. Around a third of advice firm staff receive at least half their pay packet from reaching performance-based goals such as client acquisition, client satisfaction and revenue targets.

Around 28 per cent claim over half their salary is derived from dividend payments. This is a tax-efficient method of taking profits from the company, and it’s particularly common within small firms.

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Adviser Targets

The FCA has stated that advice firms must examine whether incentives for staff increase the likelihood of mis-selling. Most wealth management and adviser firms utilise a combination of remuneration methods. Advisers earn their basic salary based on experience, knowledge and ability, with bonuses paid for meeting team and company targets. Because of this, advisers are often not paid the same salary.

Some firms believe in avoiding individual targets, which can sometimes be limiting, and instead choose to define team targets for new business, with bonuses allocated for reaching personal goals like advice suitability and client retention. This keeps customer service as the focal point, rather than winning new clientele.

Some firms have voiced concerns that certain pay structures can encourage bad practices. A high proportion of pay packets based on bonuses for winning new assets can lead advisers to act like salespeople, which often leads to disappointing outcomes.

Pay structures must be fair to all advice firm staff, with client satisfaction at the forefront of any decision. It’s essential to avoid any incentives that encourage questionable adviser practices.