Most asset managers are starting to evaluate their wholesaler compensation plans for next year. Much has been written about retail wholesaler compensation, but firms should also consider how to better compensate wholesalers who sell to DC-focused advisors. This business is an institutional, relationship-based business that takes time to develop. Unfortunately, DC compensation is typically comprised of gross commissions, which puts the focus on short-term sales. This dynamic creates a significant disconnect for wholesalers.
Asset managers must reward wholesaler efforts involving consultative sales practices such as education and value-added programs (VAPs). Asset managers should incentivize collaboration with other people within the firm, since as most firms know, DC sales is not a one-man show. A few examples from recent consulting compensation engagements:
- One of our clients accomplishes this by basing 50% of the bonuses on qualitative issues, so that collaboration is explicitly recognized.
- Another client rewards consultative sales practices by focusing on activities that lead to sales and not just the final sale itself. These include activities that build the pipeline, such as emails, phone calls, and meetings. These activities, however, must be focused — otherwise, some wholesalers may fill their appointment book to game the system.
It makes sense to reward the process that leads to sales, and not just the final sale itself. It is important though, to define the bonus structure clearly and base it on specific quantifiable metrics. Otherwise, most salespeople will get their full bonus and it will not drive the desired incentive.
The Long-Term Comp Plan
All aspects of DC sales compensation should be made more variable and tied to successfully building DC advisor relationships, but they should also be tailored to deliver a steadier, more predictable income stream for the wholesaler. Compensation plans should make more use of base salary and bonus with metrics that involve the long-term growth of assets. The discretionary bonus should be earned and paid quarterly instead of annually and based on fewer metrics that are more measurable. These changes make the goals more top-of-mind for the sales people, deliver a more concrete goal/reward relationship, and become a tool for management to make adjustments throughout the year.