Stories about compensation are bound to generate a great deal of reader interest. Such was the case for the recent series of articles on HSBC and its decision to change the way it pays its advisors.
For those who havent read the articles, HSBC earlier this year broke away from tradition and put its advisors on salary. Advisors have historically been paid on commission, a compensation structure that has allowed many top producers to earn upwards of $350,000 a year.
Industry experts have generally resisted the idea of putting advisors on salary, arguing that it would kill their motivation to build their businesses and cause them to leave for other banks. For fans of the 1960s show Lost in Space, the act of taking away commissions from advisors is akin to Dr. Smith deactivating The Robot by removing its battery.
Others argue that commissions taint advisor objectivity and create a perception that advisors dont always have the clients best interests at heart. Still others blame commission-based compensation for much of the cultural friction that exists between bankers and advisors. Bankers, who are paid on salary, tend to be reserved, relationship-oriented and risk-averse, while advisors tend to be aggressive and sales-oriented, according to industry observers. By putting bankers and advisors on a similar pay structure, the barriers between them might start coming down, some experts argue.
These two opposing viewsone for the HSBC switch; another againstare reflected in these comments received from BIC readers (and edited for grammar):
I believe HSBC is taking a courageous step to address an issue many in the industry have been dealing with; namely, disparate compensation scenarios which impede joint sales and relationship management objectives. I would imagine other providers would like to make the same change, but are fearful of the consequences. It could be that the falloff in production feared by some may not be as great as anticipated. The new compensation structures goal of more closely aligning all employees to work in the best interests of clients may just produce enough business to overcome any contemplated loss in revenues caused by the change in comp structure. Time will tell.
Posted by David S | Tuesday, July 02 2013 at 12:48PM ET
As an industry veteran I keep a close eye on the brokers in NYC. It will be very interesting to see if this UK bank can pull this off. Part of my activities includes recruitment and based on conversations that I have had with various HSBC bankers and brokers the general feeling is negative. The adjective that continues to come up is "demoralized". HSBC has never been an industry leader in anything nor have they been very profitable in their US division for the last decade. They will probably lose talented individuals at a gradual pace in my opinion but I am very curious to sit back and see how it unfolds. HSBC is making the classic mistake of trying to have their key sales people be all things to all people; a recipe for lower revenue and dilution of the business. Time will tell. One person's opinion. Jim P
Posted by James P | Thursday, July 11 2013 at 9:32PM ET
Reaction to More Banks Expected to Move Advisors to Salary
"Ultimately, it's the consumer, not industry, that will move the business away from commissions, said Tom Kane, managing director at KaneCarlton, a management consulting, coaching and advisory firm." This particular line in your post says everything. Yes, consumers play a vital role in such events because in the end the company has to serve the customer. The details I have read in your articles are awesome.
Posted by jane g | Saturday, July 13 2013 at 1:03AM ET
From my experience working at TD Wealth Management and then interviewing at TD Ameritrade when they dissolved the bank program, I found that TD Ameritrade had no "financial advisors." The employees were nothing more than "money gatherers." They would try to bring in as much money as they could and hoped clients would buy services such as research. For clients who don't have the time, interest or knowledge, and needed a Financial Advisor, TD Ameritrade would farm them out to local advisors who paid for the referrals, and I am sure worked for commissions. I don't feel this was a good example.
Posted by Mark W | Saturday, July 13 2013 at 10:50AM ET
What about you? What do you think? Is HSBCs switch to a new advisor compensation model a smart move?
Register or login for access to this item and much more
All Bank Investment Consultant content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access