To be compensated, or not to be compensated, that is the question.
Every RIA firm has a compensation model, yet all firms structure their employee salaries in various ways: commission-based, an annual base, or something entirely different. Ask around, and 98% of the time, an employee would take the former.
We all have lives, and we have families to provide for—usually, earning commission makes a significant difference in an employee’s life—but is that the best way to run an RIA that caters to financial advisors?
I’m not saying one way is better or worse; each compensation plan focuses on taking care of advisors, and it’s ultimately up to the business to run with a model that adds value to their firm.
When it comes to working with advisors and structuring an employee’s income based on the “traditional sales process,” your focus on long-standing advisors may become blurry as new business guarantees the highest commission.
If an employee has incentives for new business and earns less to take care of business already on the books, it’s not presumptuous to say attentiveness will be with newer advisors.
You’re going to put forth more effort and attention to where your commission comes from—it’s human nature.
Our Chief Growth Officer, Jeff Goodnow, feels it’s a complex operation. “It’s the old cable model, right? Who gets the discount: the new person you’re trying to win over, or the person who’s been paying their bills forever?”
Every dollar that an RIA firm brings in should have the same value across the board. For us, we’ve specifically leaned away from promotions catering to new business because older assets shouldn’t be lost in translation.
We knew we were removing ourselves from the traditional investment product firm when we eliminated our sales team. However, by reevaluating our business model, we’ve blazed a trail with our commission-less approach.
Before coming to Potomac, I was paid more for the new accounts that came in and a smaller residual for the assets that stayed; I had more motivation to focus on that next new account than to make sure that the previous relationships continued to develop.
Don’t get me wrong; there are many wholesalers out there that can nurture relationships and devote equal time to advisors. It just happens that the compensation model they’re structured under allows them to be paid more on the next new account.
With an annual-based salary, I’ve been less distracted by extra money floating around because my mission has shifted—I benefit if the whole company does well, not from individual sales. This has cascaded to every employee’s work ethic because we have a collective gain.
Chase Smith, our Education Associate, honed in on what makes us unique, “Our outreach doesn’t focus on cold-calling to see if people want to work with our services with an added discount.”
We’re aligned with the mentality that an advisor who has been at our company for years holds equal weight to potential new business.
By focusing less on sales, we’re able to devout our time to polishing all our advisors’ businesses. If every advisor leverages our services equivalently, we all win. Sometimes that means recommending our product, but other times it’s recommending another strategist within our TAMP—in the end, our business is not focused on only selling our strategies; we want advisors to exceed the goals of their investors.
We may be one of the few RIA firms that functions this way, but the younger generation has illustrated they’re ready to reconstruct older companies.
Firms remove the possibility of a burnt-out lifestyle when they lift the pressure of commission-orientated roles—it’s not all about making the most money but how to achieve the best quality of life.
This wasn’t an arbitrary decision. Potomac had been in a system that it no longer found valuable, so it adjusted.
If you want to do business with us, we’ll do everything we can to guide you to the next level; it isn’t nebulous; our process is made to be transparent.
Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.