Payout Grid Overview: Financial advisor pay can be a very complex calculation, with a variety of factors contributing to the final amount. Among the most common are:
- Total production credits (commissions) earned
- Types of products sold
- Asset gathering
Total production credits (commissions): The financial advisor payout grid at the typical brokerage firm offers a double incentive to earn more production credits (commissions). Not only does earning more production credits translate into higher financial advisor pay, but also at a higher overall payout rate.
Unlike the federal income tax which applies a rising series of marginal rates as income increases, the typical financial advisor payout grid is retroactive to the first production credit (commission dollar) earned. For example, the grid at a given firm may range from 30% to 40%, with the rates rising as the total production credits (commissions) earned by the financial advisor during the year rise. Thus, a financial advisor who is at the 30% rate on the grid will earn $30 in pay for every 100 production credits generated. Meanwhile, a financial advisor whose total production during the year places him or her at the 40% rate on the grid will earn $40 in pay for every 100 production credits. Additionally, the latter financial advisor will see that 40% payout rate applied to his or her entire production during the year.
Types of products sold: Some firms have extensive exceptions to grid, with sales of certain types of products given special payout rates. For example, a firm may give special incentives to sell in-house mutual funds, or equity new issues that it underwrites. These exceptions and bonuses can be permanent or temporary. Temporary sales bonuses often might be referred to as "flavor of the month" promotions.
The concept of offering special sales incentives for certain products, especially in-house products, has come under increasing fire, since it undermines the financial advisor's fiduciary relationship with his or her clients. As a result, some firms have done away with such special incentives, and tout their "open architecture" approach that leaves the financial advisor undistracted in seeking the best investment vehicles for the client.
Asset gathering: Even when financial advisor pay is driven by transactions and production credits (commissions) rather than by an asset-based fee, most firms nonetheless supplement the payout grid with incentive pay for asset gathering. The strategic imperative is to have as much of a client's total financial assets as possible on deposit with the firm, whereby the firm is bound to maximize the revenues that it can earn from that client.
Asset gathering awards typically are based on the net increase from year to year in the total assets in a financial advisor's client accounts. Some firms may adjust the asset gathering figure to reflect just the net deposits of new funds and securities to client accounts, removing the impact of fluctuations in value.
