This article appears in the Mid-October 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The investment industry and the economy have been on a wild ride over the past two years, but financial advisors’ fundamental needs remain unchanged.
The Advisors’ Report Card, which summarizes data from the brokerage, dealer, retail bank and insurance Report Cards, offered up top-line ratings consistent with those reported in 2021, and also revealed similar advisor demands.
The overall average of the performance ratings for the 30 categories in this year’s Advisors’ Report Card was similar to the result in 2021: 8.3 out of 10, compared with 8.4 last year. Also, none of the individual category performance ratings dropped significantly (by 0.5 or more) within that period.
The same was true for all but one of the importance ratings given by advisors: only the “bonus structure” category saw a significant dip, down to 8.2 from 8.8 a year ago. On that front, advisors said that their clients and main pay grid were more important than additional financial rewards.
“It’s about upfront pay on what we do day to day,” said a brokerage advisor in Ontario. “If we [could] have a bonus structure that rewards us, that would be great. But it’s not that important.” (The brokerage segment was rated highest of the four channels in the “total compensation” and bonus categories.)
“I’m not motivated by pay. I like the advice and follow-up that I [give] to clients,” said a retail bank advisor in Quebec, who also mentioned that their pay grid has improved in recent years. (The retail bank segment was rated lowest out of the four channels in the two compensation categories.)
Advisors in the dealer space deemed bonuses least important among the four segments, rating the importance of that category at 6.9 (a performance rating was not calculable for the channel due to insufficient sample size). That indifference was largely due to the lack of robust incentive programs.
“They removed a lot of the ongoing bonuses and stock matching plans,” said another dealer advisor in Ontario. “It would be nice to bring that back,” the advisor noted, even though their grid was “strong.”
“[My firm has] some bonuses for top performers [but] I’m not into it for quotas,” said a dealer advisor in Ontario who called their base grid “very, very good.”
The categories “freedom to make objective product choices” and “leadership stability” retained strong performance and importance year over year. Their collective performance averages for 2022 were 9.2 and 8.9, respectively, compared with 9.3 and 8.9 a year ago.
“I don’t ever want to be told what we should do with our clients,” said a brokerage advisor in Ontario regarding product freedom. “Independence is absolutely paramount in this industry,” they added, saying their firm provides a “robust product offering” and enough tools for advisors to run their businesses well. (The brokerage space was rated 9.7 for product freedom, the highest of the four segments and the same rating as in 2021.)
“Once you know and understand your client, you have to respect who they are,” said a retail bank advisor in Ontario. “I have a responsibility not to willy-nilly throw [products] at people.” The retail bank space was rated lowest among the four segments for product freedom at 8.2, down from 8.4 a year ago largely due to product-shelf cuts tied to the client-focused reforms (CFRs).
And, as one dealer advisor in Ontario said, further restrictions can push advisors away: “[Product limits] were a big part of the reason I changed firms. I’m much more free now.”
Regarding leadership stability, the brokerage space was rated highest for performance at 9.2 (up from 9.0 in 2021), while the insurance space was rated lowest, at 8.7 (down from 9.1). Respondents in 2022 indicated that a strong vision means firms can invest efficiently in the tools and support they need.
If leaders are “involved, intelligent [and] communicate well,” that positive influence “trickles down [to] the staff in the back office and to the advisors. It creates a great culture,” said a brokerage advisor in Alberta.
A retail bank advisor in Ontario said their leadership has, through “excellent communication,” underlined the importance of financial planning resources: “It’s a very important part of the business.”
What’s more, strong leadership can boost brand recognition and attract prospects. “When the client sees the company is reputable, it builds confidence,” said a dealer advisor in Ontario.
Like in the 2021 Report Card, advisors generally said they would recommend their firms to other advisors. The collective Net Promoter Score (NPS) for all 36 firms assessed in 2022 was 63.2, up from 62.2 in 2021. (A score of 50.0 or higher is considered excellent.)
An NPS is calculated based on the likelihood, on a scale of zero to 10, that respondents would recommend their firms. Firms with a higher NPS have more promoters than detractors.
This year, 16 firms had NPS results of 70.0 or higher (a threshold considered exceptional), down from 20 firms a year ago. Five of the 10 firms with the highest NPS were brokerage firms (down from seven from that segment in 2021). For the other five, two were dealer firms, one was a Big Six bank’s retail division, and two were managing general agencies.
Advisor loyalty was inspired by a list of qualities that reflected the best-performing and most important categories for 2022. One brokerage advisor in Ontario said they would recommend their firm “for all the [same] reasons” as they rated the company well for its support: “leadership, culture and the product offering.”
Compliance support, too, was crucial in the past year. Said a dealer advisor in Ontario: “It’s been a blessing to be at [my firm] because they have been very proactive with the new CFR rules.”
For more on our methodology, see How we did it.
Advisors’ most important categories
These are the categories deemed by advisors to be the most crucial to their businesses (importance ratings are out of 10).
- Freedom to make objective product choices: 9.6
- Quality of product offering: 9.4
- Technology tools & advisor desktop: 9.3
- Reputation with clients & prospects: 9.3
- Back office & administrative support: 9.3
- Leadership stability: 9.2
- Support for dealing with regulatory changes: 9.2
- Receptiveness to advisor feedback: 9.2
- Advisor’s relationship with compliance department: 9.1
- Client onboarding tools: 9.0