Trends in adviser compensation – embrace change
For Tim Coleman, cultural fit is crucial for an adviser.
If an adviser is interviewing with Coleman for a job at Centier Bank and the first question is, “How much will I get paid here,” it raises a red flag. Granted, everyone wants to get paid (“very few of us work because we’re charitably inclined,”) but the bottom line for Coleman is simple: That question is never the client’s first question. “I’ve yet to sit across from a client in 25 years-plus in this business and see them show much interest in how much I take home. They want to know about our fees, but not how much I take home.”
Coleman, senior VP and director of Wealth Management at Centier Bank, has been there just a little more than a year, but it didn’t take long to understand the bank’s vibe. They are proud of being a 120-year-old, fourth-generation family-owned bank. “We go to great lengths to make sure folks understand what kind of organization we are and how we want to be perceived in the market,” he says.
Centier, based in northern Indiana about 45 minutes from downtown Chicago, has seven advisers who oversee $450 million in assets. (There’s another roughly $550 million in trust assets.)
Coleman spoke to Bank Investment Consultant recently about adviser compensation in light of the trend toward cheaper investing, the fiduciary standard and shifting customer demographics. (This was just before the fiduciary rule was officially delayed for 60 days.)
Here are some excerpts of that conversation.
Bank Investment Consultant: What’s the biggest trend you see happening with adviser compensation?
Tim Coleman: Many firms, including ours, are working hard to get this right. The question becomes, how to you best compensate advisers for making the transition from transactional or product-based approaches that they may have used before to more of an advisory relationship. And I don’t think that’s entirely about DoL compliance. I think it’s about expanding our advisers’ efforts to provide planning and advice. They have to settle into that role more comfortably than they may have in the past.
BIC: Playing ‘what if’ for a moment, if the fiduciary rule had been passed in the form expected a year ago, would it have been a given that adviser comp, in general, would have declined?
TC: It’s all about fee levelization, that’s what everyone wants to talk about whether it’s retirement plans or individual retirement accounts. And yes, I agree, the general thought has been that comp within a particular product group is going to decline over time. Or it could be capped within a product group so it’s more compliant. I think that will continue and will likely be seen as a positive outcome. That will impact anyone who has grid-based compensation. The march toward a fiduciary standard may slow down a bit, but the prevailing sentiment is that it will continue, so being compliant isn’t an option, we still have to move ahead in that direction.
BIC: What will the impact be on advisers, whether it’s from the general trend or from a specific rule?
TC: The advisers who are committed to continue to act in their clients’ best interest will be successful. But they’ll be challenged to evolve, just as we are at the program level, and as the fund providers are at their level. Everyone is responding to the challenge, I think appropriately. And I think it’s inevitable that we’ll be under some type of fiduciary standard going forward.
"If your organization embraces high service to the client, then it’s likely the same folks who have been successful who will continue to be successful, just in different ways."
BIC: In defense of the advisers, it may feel like they’re devolving instead. They’ll have more requirements on them, but earning less compensation.
TC: In the short run, that may be true for some. But others are looking at it as a way to build their practice more from a planning and advice perspective. There are some advisers who, as they are re-making their practices, are seeing a great deal of success. In the short-term, they have to make a decision to embrace it, but I think in the long-term, they’ll start to see some benefit.
BIC: How do you implement a new mind-set that they have to change the way they approach their jobs?
TC: You embrace the technology, you look for opportunities to create efficiencies, and then reach out in whatever medium the customers are expecting to try to bring them your product, in our case advice. Is it one size fits all? No, but it never really was. There was always someone looking for active vs passive, or some specific product that they’re adamant about. But you have to meet them where they are and provide the best solutions you can. The final decision is up to the customer, but I think there’s a path there to remain successful and the quality advisers aren’t running for the exits, they’re very much engaged and they want to see it through.
BIC: Since the industry is relationship-driven and not so sales-focused, is a new type of adviser with a different personality needed now?
TC: In some circles I guess it could be perceived that way….Our model is built around top-level service. As a bank, if your organization embraces high service to the client, then it’s likely the same folks who have been successful who will continue to be successful, just in different ways. The stereotypical adviser who’s a hard-driving, sales-at-all cost person, that will have to be softened a bit to be successful when clients are looking to us to behave differently…but most folks who have that drive to be successful will be successful within whatever rule set is applied.
BIC: Some people have said that banks just need a higher quality of adviser in the new age. Do you agree with that?
TC: I would disagree that it’s a quality issue. I think it’s more of a need for advisers with a different focus. They need to determine how their practice fits in the new world, and if they can evolve to provide the advice and solutions their clients are asking for, they’re going to succeed…I meet a lot of those hard-driving salespeople you mentioned, they’re constantly sitting up in front of every seminar and telling how to drive sales. Most of them use the verbiage that we’re using. They talk about advisory relationships, they talk about being more consultative with clients, they talk about being more patient and understanding the client’s perspective, they talk about the 80/20 rule. There are all sorts of vernacular that gets thrown at it, but it comes down to whether you're acting in the best interests of your client.
BIC: What do you see as the biggest challenge in attracting and keeping advisers?
TC: I think it’s working with that next generation and showing them a path and showing them their experience can be helpful to clients. They want to see that road map. I think it’s important to get those young advisers who have an entrepreneurial spirit to see the opportunity in coming into an industry at a time of change and apply their skills with tech and social media. And if they’re willing to take some coaching around communications, they can be very successful. My advice to young people is to identify the successful people in their industry, or the industry they want to be in, and figure out what traits and qualities they have. What credentials do they carry, how do they conduct themselves, experience what it’s like to attend their meetings and be a client of theirs and decide if it’s still attractive to them.