24th February 2025

Adviser Bonus Schemes - Do They Drive Success or Create Challenges?

Ineffective Bonus Schemes 

“Ineffective bonus schemes are a major cause of employee dissatisfaction and staff turnover” says Paul Harper, Managing Director of Paul Harper Search. While most employers recognise that their bonus scheme should motivate individuals and encourage them to engage in the right behaviours, many would admit that they may not have got it exactly right on occasion.

In broad terms, there are two main behaviours which a bonus scheme should reward.

1. It should reward looking after existing clients, whether you're a BDM, Financial Planner or other. There should always be an element of reward for doing a great job for your existing clients. In today's day and age, it's very common to see this rewarded in KPI terms and individuals set a number of KPIs and a percentage of their basic salary for achieving these.

2. The second behaviour that needs rewarding is bringing in new business, and we all want more new business. However, we all hear stories where individuals have focused too much on new business at the expense of their existing clients.  Provided the KPI bonus is right, the focus on new business need not be as great as all that. It should be an additional payment for additional achievements and reward overachievement only, ie, bringing in new clients or new business. 

One of the major problems I see with new business bonuses is that business owners set thresholds, making the new business bonus almost impossible to attain. Another way of doing this is by creating a bonus scheme that only pays out when several hurdles have been met.

Of course, this is designed to reduce the chance of paying out. It allows a company to have a high headline OTB (on-target bonus) in the knowledge it might aid recruitment even though it's unattainable for most. Unfortunately for those who set these hurdles, the members of the scheme can see through it, and it tends to create a rift between management and staff and become a demotivator. When we are taking on assignments, we always ask three questions:

• What is the OTB? 
• What are the current team earning? 
• What is realistic?

We might then ask a supplementary question - Have you altered the scheme recently?

My view on thresholds is that the company has a duty to make a bonus scheme motivational and achievable. If there's too big a gap between the threshold and the current ongoing income or business, the candidate will quickly lose motivation, particularly if they're expected to do a lot of business as usual work, which impacts on their ability to do new business.

Moving forward, I think we'll see a lot more examples of adviser-direct type arrangements where companies hand off small clients to an office-based team of Financial Planners, enabling the senior Financial Planners to look after key clients and generate new business.

Creating a bonus scheme that works for Financial Planners and their employers

As a headhunter, I'm constantly asked by clients and candidates what a good bonus scheme looks like. Of course, we have oversight of many different schemes, all with their good and bad points. However, the honest answer is that it depends. What we do know is what advisers are typically paid in basic and total earnings across various areas. We also know that companies design bonus schemes to create the right balance between profitability for the company and motivation for the adviser. Not only do we know this, but we publish it and offer it for free every year in our Financial Planner – Fascinating Facts and Figures and our BDM Salary Survey, both of which are available for free on our website. 

So why does it so often go wrong?

Almost every day, a member of my team speaks to a Financial Planner whose major reason for moving is that their current remuneration does not work for them.

At the same time, when we receive new instructions, we're often told that the previous Adviser was not that effective in their role.

Why is there such a gap between company and employee earnings expectations?

The simple answer is that many companies try to create formulaic bonus schemes without providing the Adviser with the necessary wherewithal to perform their job effectively.  

Things that make Advisers more productive

1. Give them a client bank of an appropriate size, which can be worked on to create good referral opportunities.
2. Provide paraplanning and other support to allow them to focus on advising.
3. Create a good lead generation system for the Adviser or giving the Adviser introducers to work with. 

So, if it's that easy, why doesn't it work?

I think there's a variety of reasons:

1.       The old-fashioned advice director who doesn't recognise how the world has changed

 We all know that until 12 years ago, the way advice was paid for was very different to today. At that stage, new business was everything. Initial commissions were very high, and ongoing fee payments were relatively low. Today that situation has reversed. The most important thing now is to have assets under management, which generates income for the firm and the individual (unless you're in a position where you've charged transactional fees). 

With this in mind, it's almost impossible for an individual to set up today with no clients and build a successful business. There are still plenty of hiring directors out there who think that it still can be done. The reality today is that an individual needs a good client bank to start with, which gives them the opportunity to create further revenue.

2.       The company which expects you to generate new business just to justify basic salary

 This is another version of the above. Historically, it has been common for advisers to have targets that include new business and for bonuses to have a threshold above the current level written. Get over it! It is now time to remunerate Advisers properly, paying them a fair rate to do their job, which is to look after existing clients and incentivise them to generate new business for the company from existing and new clients.

3.         Bonuses linked to a multiple of basic salary without the clients to support it

 Advice businesses are beginning to move away from this model, but it's still something I see a lot. While it is fine for a company to have a rough equation between fees generated by a client book and the salary paid, having that as the main measure for remunerating an individual is not sensible. Bonuses should be rewarded for the right behaviours - delighting existing clients and growing the client book.

4.         Advisers are expected to do the day job for nothing

This is becoming rarer, but it's still clearly the case in many of the direct sales outfits and those operating on a self-employed basis. For some unknown reason, they seem to think that Advisers should look after client banks without being remunerated for it. This would never happen in any other walk of life. You should be paid for doing the job, and your basic salary should reflect that. It doesn't mean that you can't have small client banks where you pay low basic salaries, but what it does mean is you shouldn't set a ridiculous situation where someone joins a business and within a limited time loses their job because they haven't generated enough new business to pay for themselves or they build a debt. 

1.        Not providing enough clients or leads or a decent source of leads.

If you want a Financial Planner to grow their client base, you need to give them the opportunity to do this. Typically, this will be by providing leads to them and/or by providing leads to them with a good client bank, which gives them opportunities to get further referrals.

6.         Not paying the Adviser to do the day job

 

This is one of the biggest mistakes I see companies make. They set up a bonus scheme, which is unattainable. They expect the Adviser to bring in extra business just to cover their basic salary. How can that motivate someone?

1.        Designing a bonus scheme which is loaded in favour of the employer?

I've already mentioned that too many employers are deluded about how much new business their new advisers can write.  They are less experienced and less skilled than your most senior advisers and are remunerated accordingly. It is fine for existing Advisers who've been with the company a long time and have good client banks to write a significant amount of new business if they're motivated correctly.  It is not fine for a new Adviser joining with a limited client bank to be expected to write even larger volumes of new business.

So what can be done about it?

Well, the first time we speak to any new client about hiring Advisers, we speak to them about their salaries and bonus schemes. It is amazing how often these are not lined with reality. It is also amazing how often clients go off with their tails between their legs and decide not to hire because it will be too expensive.

You should look at it differently. Every Financial Planner can add significant value to your firm, but you need to set them up to succeed and not set them up to fail. 

How do you do this?

The most important thing is to decide how clients are allocated to the new Financial Planner. This will often need to reflect the basic salary you choose to pay them, and logically, this may well be a basis of a multiple. For instance, if you want to pay a basic salary of £80,000, it makes sense that you provide your Financial Planner with ongoing fees of around £240,000 per year (3 x their salary). It is then quite straightforward to set up a bonus scheme. They are paid £80,000 a year to do the day job, which means looking after all the existing clients. You have £160,000 per year ongoing to cover overheads and profits. You may want to pay a KPI bonus on top of that.  You are then in a position to remunerate them for growing the client bank. 

You can decide on that multiple, but typically it might be a percentage of initial fees, ie. 30%, 20% or 15%. This is an Adviser adding to the value of their client book and building the value of your firm.

An Adviser like this is likely to stay. They don't need to hit a minimum number to remain in place because their ongoing Adviser fees should cover it. They are motivated to bring in new business and further referrals because they will benefit from that. As an employer, you benefit from having a motivated employee who will do an excellent job for your client and is paid a competitive salary to do so. This candidate will likely be retained by your firm for the long term as they build up their basic salary and grow the client book. A good basic salary will help them secure a mortgage and keep them motivated to do a great job for your firm.

The Secret to Designing a Rewarding Bonus Scheme 

Firstly, answer this question:

What outcomes do you require? This is likely to be: 

• Provide a first-class service to existing clients.
• Grow the client book by identifying further opportunities within the existing client bank and requesting referrals.

Next, carry out the following actions:

• Ensure the scheme is considered achievable. 
• Hire the right people. 
• Ensure your Advisers are not already overwhelmed with existing clients (scope to do more business).
• Reward the behaviours you want. 
• Ensure their basic salary does not place them under too much pressure, which might encourage bad behaviours.

Carrying out these steps is the key to creating an effective bonus scheme. 

If you would like further advice or supporting in redesigning your adviser remuneration, we can help. Contact me on paulh@paulharpersearch.co.uk or call 07768 952212

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