Advisor pay a sticking point

Financial advisors surveyed for this year’s Report Card on Banks shared mixed experiences regarding the way they are compensated by their financial institutions.

The performance averages for the categories “firm’s total compensation” and “firm’s reward/recognition program” were fairly static compared with last year: 7.9 and 7.7, respectively, up from 7.8 for the former, and unchanged for the latter.

Yet, individual performance ratings within both categories varied widely – between 6.9 and 8.5 for compensation and 6.7 and 9.1 for rewards/recognition. Further, the compensation category remained in the top 10 for greatest satisfaction gap (7.9 in performance vs 9.1 in importance), although that gap has closed by 0.2 year-over-year.

Ratings for Toronto-Dominion Bank (TD) and Bank of Montreal (BMO), each based in Toronto, fell in both categories, with advisors citing recent changes in compensation structure as the driver behind their poorer performances. In contrast, the other banks mainly rose in the compensation and rewards categories – the performance ratings of Royal Bank of Canada (RBC; 8.5) and Bank of Nova Scotia (7.7), both based in Toronto, jumped significantly (by half a point or more) year-over-year.

In the compensation category, TD’s rating was the lowest of all banks in this year’s Report Card, dropping to 6.9 from 7.7 in 2018. As in past years, surveyed advisors from TD had the highest percentage of compensation derived from fee- and/or asset-based revenue of all the banks: 69.1%, up from 36.2% in 2018. Only 15% of their compensation was from salary (down from 40.1% last year) and 12.6% from bonuses (up from 0.5%). Across the whole Report Card, on average, 59.3% of advisors said their compensation was derived from salary, followed by 20.6% from bonuses and 15% from fee- and/or asset-based revenue.

Compensation has “changed four times in the past four years [and they’ve] decreased the grid,” says a TD advisor in Ontario.

Advisors at half of the institutions referenced recent changes to compensation structure as the basis for their frustration with their bank, and this issue even affected whether they recommended their bank.

“I took a pay cut to come to this role and then they slashed the compensation again,” says a TD advisor in Ontario who would not recommend their bank. “Somebody has asked me [and] I told them to consider everything. I would caution people.” (TD’s overall recommendation rating was 88%; the Report Card average was 91.9%.)

“The compensation has been changed significantly to [award] commissions based on goals, but the goals are arbitrarily set and not reachable,” says another TD advisor in Ontario.

David Terry, vice president and head of TD Wealth Financial Planning, says the bank has not cut pay. Rather, he says the bank has modified compensation to include bonuses based on customer satisfaction and client acquisition.

“Obviously, any time you make a shift in compensation, different individuals experience that differently. But there was no reduction in compensation,” Terry says.

BMO advisors were also frustrated with changes to their compensation model. The bank received a rating of 7.9 in the compensation category, down from 8.3 last year, and advisors said they didn’t know what their compensation would look like in future.

“They are changing the compensation. So this year is great, but I think it’ll drop next year for sure,” says a BMO advisor in Alberta.

Another BMO advisor in Alberta adds: “I’m very concerned. It’s radically changing in November.” While a BMO representative wouldn’t confirm or deny this claim, they did say in an emailed response that annual reviews are done to potentially “make changes that will have a positive impact on both our customers and team members.”

Still, advisors expressed frustration with the perceived lack of communication throughout the process.

“They need to improve the processes around how they deliver content to us about changes. We’re experiencing a compensation change this year and we don’t even know that much about it yet. If they get it wrong, there will be a mass exodus,” says a BMO advisor in the Prairies.

A BMO advisor in Alberta says, “They made us a part of the process in the beginning, but now that it’s rolling out, it’s not looking like anything we asked for.”

In contrast, compensation ratings for both RBC and Scotiabank rose significantly year-over-year, to 8.5 from 7.9 and to 7.7 from 7.2, respectively.

RBC advisors cited improvements in their compensation structure over the past year. “The compensation is why I’m still here. I work hard, and RBC makes it interesting for me to stay,” says an RBC advisor in Quebec.

Michael Walker, vice president and head, mutual funds distribution and RBC Financial Planning at RBC, says the bank evolved its model to recognize planners “for their expertise in how they work with and help to steward our clients.

“The steps we took this past year,” Walker adds, “[were] really to better identify our expert financial planners and carve them out in terms of a separate position level.”

As for Scotiabank, advisors attributed their satisfaction to the stability of their paycheques. On average, Scotiabank advisors reported receiving more than 90% of their total compensation from a base salary, with the rest coming from bonuses.

While some advisors expressed concern over their pay not being competitive enough, others said they were comfortable avoiding the traditional commission-based model, saying they can “truly help [their] clients” without the pressure to push products or reach targets.

“Even with the low income, I am happy. Generally, I think the banking industry should just lay off a little bit about quotas. At the end of the day, we are service providers. A good advisor [solves] clients’ issues and explain[s] everything to them,” says a Scotiabank advisor in Ontario.

Jamie Auerbach, vice president of advice and service effectiveness at Scotiabank, says his bank takes a balanced approach to advisor compensation. “They aren’t expected to grow their AUM.”

Auerbach adds: “Our advisors have a group of customers that are assigned to them based on their capabilities.” Advisors are encouraged to serve clients regardless of portfolio size, he says.

Across this year’s Report Card on Banks, advisors acknowledged that compensation is an important aspect of the work that they do. Yet, despite the impact of pay changes, they did say that compensation is lower on their list of priorities in relation to other support and services provided by their banks.

Says an RBC advisor in Manitoba, “It’s more about a work/life balance, and the ability to help shape our clients’ financial futures.”