Increased Revenue: Refining Comp Plan to Fuel Growth

Increased Revenue: Refining Comp Plan to Fuel Growth

Executive Summary

Rossi Family Office Services, a growing RIA managing $350 million in assets, struggled to align advisor compensation with the firm’s strategic growth objectives. Their existing compensation structure, primarily based on existing AUM and client retention, did not adequately incentivize new client acquisition or proactive AUM growth. By partnering with Golden Door Asset and implementing a restructured compensation plan with a greater emphasis on performance-based incentives, Rossi Family Office Services saw an 18% increase in firm revenue within one year, exceeding their initial growth targets.

The Challenge

Rossi Family Office Services recognized that their existing compensation structure, while rewarding client retention, was hindering their growth potential. Under the old system, advisors received a base salary plus a percentage of revenue generated from their existing book of business. While this promoted client satisfaction, it fostered a sense of complacency.

Specifically, the challenges were:

• Limited Incentive for New Client Acquisition: The existing comp plan offered only a small, one-time bonus for onboarding new clients. This was insufficient to motivate advisors to actively prospect and dedicate the necessary time to building new relationships. For example, an advisor onboarding a $1 million client only received a $5,000 bonus, a mere 0.5% of the AUM. This made it more appealing to simply service existing clients rather than pursue new opportunities.

• Lack of AUM Growth Motivation: Advisors were primarily rewarded for maintaining their existing AUM. There was no significant financial incentive to actively grow their existing client portfolios through financial planning initiatives, referrals, or capturing a larger share of the client's overall assets. As a result, advisors were not proactively seeking opportunities to increase AUM within their existing client base. Consider a scenario where an advisor successfully guided a client to invest an additional $200,000. Under the old system, their incremental commission would be minimal, especially when compared to the effort required.

• Inconsistent Performance: The lack of clear performance metrics resulted in inconsistent results across the advisory team. Some advisors consistently exceeded expectations while others lagged behind, contributing to an uneven distribution of firm resources and opportunities. The lack of clearly defined targets and rewards created a sense of inequity among the team.

• Difficulty Attracting Top Talent: Rossi Family Office Services found it challenging to attract high-performing advisors due to their less competitive compensation structure. Potential candidates were often drawn to firms with more lucrative performance-based incentives. They lost out on a promising candidate who was bringing $30 million in AUM to another firm with a 20% higher bonus for new assets acquired.

• Missed Revenue Opportunities: In 2022, the firm projected a revenue growth of 12% but only achieved 8%. They attributed this shortfall, in part, to the inadequate compensation plan. This discrepancy of 4% translated into a lost revenue opportunity of approximately $140,000, based on their $3.5 million in revenue at the end of 2022.

The Approach

Rossi Family Office Services took a multi-faceted approach to address their compensation challenges. They recognized that a complete overhaul of the existing structure was necessary to align advisor incentives with the firm's growth goals.

The key steps included:

1. Needs Assessment: The leadership team conducted a thorough analysis of the existing compensation plan, identifying its strengths and weaknesses. This included gathering feedback from advisors through surveys and individual interviews to understand their perspectives and concerns.

2. Benchmarking: They researched compensation models used by other successful RIAs, focusing on firms with similar AUM and growth trajectories. They analyzed industry best practices and identified key components of effective performance-based compensation plans. Golden Door Asset provided data about comp models that worked best for firms of similar size.

3. Strategic Goal Alignment: They clearly defined the firm's strategic goals for the next 3-5 years, focusing on key metrics such as AUM growth, new client acquisition, client retention, and client satisfaction. These goals served as the foundation for the new compensation structure.

4. Points-Based System Development: The team developed a points-based system that incorporated various performance metrics, each assigned a specific point value based on its importance to the firm's strategic goals. Metrics included:

   • New AUM Acquired: Points awarded based on the dollar amount of new AUM brought into the firm.
   • New Clients Onboarded: Points awarded for successfully onboarding new clients, with higher points for clients meeting specific asset thresholds.
   • AUM Growth within Existing Clients: Points awarded for increasing AUM within existing client portfolios through financial planning and investment strategies.
   • Client Retention Rate: Points awarded for maintaining a high client retention rate.
   • Client Satisfaction Scores: Points awarded based on client satisfaction surveys.
   • Cross-Selling: Points awarded for recommending and closing cross-selling opportunities across different services.

5. Tiered Compensation Structure: The points-based system was integrated into a tiered compensation structure, with increasing commission percentages and bonus opportunities at each tier. This provided advisors with a clear path for advancement and financial reward based on their performance.

6. Transparency and Communication: The new compensation plan was communicated clearly and transparently to all advisors, with detailed explanations of the point system, performance metrics, and compensation tiers. Regular performance reviews and feedback sessions were implemented to provide ongoing support and guidance.

7. Phased Implementation: The new compensation plan was implemented in phases, starting with a pilot program involving a small group of advisors. This allowed the firm to test the plan, gather feedback, and make adjustments before rolling it out to the entire team.

8. Leveraging Golden Door AI: Golden Door Asset tools helped to benchmark the efficacy of the performance-based system by comparing it to other comp structures and running simulations on potential financial outcomes.

Technical Implementation

The implementation of the new compensation plan involved a combination of technical tools, process changes, and data integration.

• CRM Integration: The points-based system was integrated into the firm's existing CRM system (Salesforce). Custom fields were created to track advisor performance on each metric, automatically calculating points earned.

• Data Automation: Data feeds were established to automatically pull data from various sources, including portfolio management systems, client onboarding platforms, and client satisfaction survey tools. This eliminated manual data entry and ensured data accuracy.

• Performance Dashboards: Interactive performance dashboards were created within the CRM system, providing advisors with real-time visibility into their performance against each metric. These dashboards allowed advisors to track their progress, identify areas for improvement, and proactively manage their performance.

• Automated Compensation Calculations: The CRM system was configured to automatically calculate advisor compensation based on the points earned and the tiered compensation structure. This eliminated manual compensation calculations and reduced the risk of errors. For example, the system automatically calculated an advisor's bonus based on a complex algorithm that considered new AUM, client retention, and cross-selling revenue, a process that previously took several days of manual effort.

• Financial Modeling: Financial models were developed to project the financial impact of the new compensation plan, taking into account different performance scenarios and advisor behaviors. These models helped the firm to refine the compensation structure and ensure its financial sustainability. They performed Monte Carlo simulations of revenue, client acquisition and AUM growth under different performance scenarios and commission rates.

• Security and Compliance: The implementation of the new compensation plan included robust security measures to protect sensitive data and ensure compliance with all applicable regulations. Access controls were implemented to restrict access to compensation data to authorized personnel only. The process ensured compliance with SEC regulations, including those around conflicts of interest arising from compensation incentives.

Results & ROI

The implementation of the restructured compensation plan yielded significant positive results for Rossi Family Office Services:

• Increased Revenue: Firm revenue increased by 18% within one year of implementing the new compensation plan, exceeding the initial target of 12%. This translates to an additional $630,000 in revenue based on the firm's previous year's revenue of $3.5 million.

• AUM Growth: The firm's AUM grew by 22% within one year, driven by increased new client acquisition and organic growth within existing client portfolios. AUM increased from $350 million to $427 million.

• New Client Acquisition: The number of new clients onboarded increased by 35% compared to the previous year. The average AUM of new clients increased from $750,000 to $850,000.

• Improved Advisor Performance: Advisor performance across all key metrics improved significantly, with a more even distribution of performance across the team. The top performing advisor increased their AUM under management by 40%, while the lowest performing advisor increased theirs by 15%.

• Higher Client Satisfaction: Client satisfaction scores increased by 10%, indicating that the new compensation plan did not negatively impact client service. The average client satisfaction score increased from 8.5 to 9.3 out of 10.

• Reduced Advisor Turnover: Advisor turnover decreased from 8% to 3% within one year, demonstrating that the new compensation plan improved advisor morale and retention.

• Return on Investment: The cost of implementing the new compensation plan, including consulting fees, CRM integration costs, and training expenses, was approximately $50,000. The increased revenue of $630,000 resulted in a return on investment of over 12x in the first year.

Key Takeaways

• Align Incentives with Goals: Compensation plans should be carefully designed to align advisor incentives with the firm's strategic goals.

• Focus on Performance: Incorporate performance-based metrics into the compensation plan to reward advisors for achieving key results.

• Transparency is Key: Communicate the compensation plan clearly and transparently to all advisors, providing detailed explanations of the metrics and rewards.

• Leverage Technology: Utilize technology to automate compensation calculations, track performance, and provide advisors with real-time feedback.

• Regularly Review and Adjust: Compensation plans should be regularly reviewed and adjusted to ensure they remain effective and aligned with the firm's evolving goals. Don't set it and forget it!

About Golden Door Asset

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