Cetera Financial Group selects Xtiva for enterprise-wide SPM technology upgrade
Xtiva Reward to support Cetera’s aggressive strategic business objectives including accelerated growth, streamlined operations and increased business scale.
Unprecedented times. The COVID-19 pandemic, market volatility and unprecedented new risks in customer financial plans, has increased the pressure on financial advisors to effectively address the concerns of unsettled clients. With most advisor compensation linked directly to revenue generated from asset-based fees and transactional commissions, the immediate impact on advisor pay is self-evident.
A number of wealth management firms moved quickly to soften the blow, taking a few different approaches:
1. Reversal of planned production threshold increases. Several firms – particularly, wirehouses – had planned to increase the production thresholds of their payout grids (in part to reflect the increased production that had been driven by the rise in equity markets over the last few years); these planned changes have been delayed, and the speed of the recovery will likely help predict when the changes will actually be implemented
2. Relaxing small relationship rules. Many firms discourage advisors from maintaining too many smaller relationships in their books, either by reducing payout or imposing fees on accounts or households that fall below a specified size threshold. Recognizing that more investors have fallen into this group over the past few months, these measures are being modified or suspended to ensure those customers can continue to access services fully. While we anticipate that a resumption will likely be tied to the shape of the recovery, we also expect some firms may take this as an opportunity to align certain compensation, pricing and service model elements more closely with Reg BI.
3. Extending tool and services. For independent advisor practices, there isn’t an employer, to help absorb the blow of COVID-19 impact. Custodians, technology providers, and IBDs are stepping up and providing tools and services to support their advisor practices.
These specific measures are expected to be temporary – smoothing choppy waters and helping to maintain normal operating environment for advisors – given that they are funded at the expense of the profitability of their employers or networks. At a future date, once we have navigated out of this pandemic and return to an economic landscape that looks “normal”, a rebalancing of the financial accounts will almost certainly occur. But, will it be simply a reversal of the deferred grid changes, a reintroduction of small household policies and a continued trend of rewarding the shift from transactional revenues to asset-based revenues? We think it far more likely that the industry will embrace an accelerated evolution in its business model and therefore more substantial changes in compensation practices.
The way investors pay for wealth advice will continue to shift from legacy methods that reflected historical costs (trades) or those where assets were a proxy for value to new models that better fit the regulatory future state and value in the advice channel. These models derive pricing from services (i.e.: financial planning, insurance planning, longevity consulting, tax optimization, estate) combined with a more holistic focus on volume measures that reflect the size of the customer’s financial footprint. These accelerated shift in the business, will necessitate the adoption of new revenue models as customers vote with their loyalty and dollars. Advisor compensation will evolve to reflect this.
Mechanisms like small household policies have served their purpose of helping manage the economics of the business and segment the value proposition to clients. With the rapid acceleration in advisor technology, it is likely that we will see these mechanisms evolve to reflect the increased advisor capacity unlocked by technology. Coupled with new perspectives on advisor informed by the COVID-19 crisis, and a broader industry acknowledgement that most advisors benefit from allocating a portion of their capacity to a carefully curated set of younger clients, we look for a variety of new tactical approaches to emerge quickly, further accelerated by Reg BI.
Revenue production levels will continue to be the core driver of compensation for most advisors, but salary plus bonus has gained a foothold in the US and Canada (and is prominent in other jurisdictions). What is more exciting is the growing focus on linking compensation to investor outcomes (satisfaction, retention), and the advisor behaviors that lead to more successful outcomes (e.g.: depth and breadth of household engagement, focus on financial wellness, leveraging technology to more effectively paint a picture of the customer’s financial health and needs).
These changes aren’t going to happen overnight, but an accelerating technology landscape and a huge pandemic-induced reset on how people think about their health and financial security herald a wave of change unprecedented for many of us in the industry.