compensation

Sales Compensation: Same as It Ever Was

Posted by Mike McLaughlin on Nov 10, 2011, in Thoughts , tagged with , ,

Last week I read a Tweet attributing the following to the head of a large mutual fund company:

Compensation structures have to change.

I also recently read a trade journal article about the challenges associated with sales compensation. It covered the usual bases:

  • “…firms still fall short when it comes to using pay to incentivize wholesalers to focus on certain activities.”
  • “We are looking for individuals who are aligned with the business goals of the organization.”

Here’s how I see it:

Why? Because of how little the comp conversation has changed over the years. For all the supposed “strategic” conversation around paying salespeople, the last decade has shown comp to simply be an operational tool requiring ongoing tactical adjustments.

The quotes above mirror discussions dating back more than ten years. A quick search on Ignites yielded the following:

  • 2010: “…pay models are in flux as firms struggle to offer compensation that can attract and retain key talent but also stand up to bottom-line realities…”
  • 2009: “…more companies should consider strategies that align compensation with the overall profitability of the firm.”
  • 2006: “…companies are increasingly considering [profitability] when calculating pay packages in order to more closely align wholesalers’ objectives with their own.”
  • 2001: “…fund firms should look at bringing wholesaler compensation in line with the firm’s profit model.”

I’m not saying that pay isn’t important – it certainly gets a huge amount of airtime and consideration at our clients. But for now it is not an area that is ripe for innovation. Instead, firms will continue the cycle of making moderate modifications to try and find the right incentives, the right level of complexity, and the right targets.

Advisors’ Use of Fund Firms: What’s the Truth?

Posted by Mike McLaughlin on Jun 22, 2011, in Thoughts , tagged with , , , , ,

Last week Cerulli Associates released a study built from a survey of over 1,800 advisors. As chronicled in Ignites (subscription), a key finding focuses on how advisors are using fewer mutual fund providers and “…the importance of cementing solid relationships to secure preferred provider status…”. A snippet of the relevant data:

  • 57% of advisors use 5 fund firms or less, up from 37% in 2009
  • 13% of advisors use 15 fund firms or more, down from 25% in 2008

The idea of concentrated mutual fund family usage has been increasingly trumpeted over the past few years. And I have no doubt that the data is reported accurately based on advisors’ responses. But I am dubious of the idea that so many advisors use so few fund firms. Two reasons why:

  • The first-hand knowledge we have of our clients’ data shows it’s common for firms to have huge numbers of small, single-product advisor relationships.

  • Many firms prioritize cross-selling over pure prospecting. Sales strategy and comp plans are frequently driven by the desire to build deeper, multi-product advisor relationships. Highly-concentrated assets among advisors, as indicated by the survey data, would seemingly dictate a greater focus on new client acquisition.

So what does this mean? Two takeaways:

  • Beware Self-Reported Data: I think it’s human nature to neglect the “long tail” of small positions within clients’ portfolios. There may be 5 primary firms used by advisors, but not 5 total.
  • Beware Aggregated Data: The survey is cross-channel and includes advisors with an average AUM of $50M. But fund firms typically have a more targeted, specific strategy than that. It’s important to isolate the subset of comprehensive data that is relevant and draw conclusions from there.

We’ve been involved in enough syndicated research to know that the data gathered always leaves room for interpretation. The findings here fit the bill.