In the current economic environment, redemptions and falling gross sales have caused many asset managers to rethink their compensation plans, including adding or expanding pay on activity metrics. However, adding activity data isn’t as simple as it may seem. It requires additional plan design decisions and compliance efforts. Here are five things to consider if activity is or will be part of your compensation plan.
- Create a governance and auditing process for activities. Most major compensation compliance scandals started with small breaches of trust that became larger scale issues. Activities is one of the easiest metrics to cheat on, because sellers can exaggerate activity levels or violate personal standards to meet a goal. (Activity levels are self-reported into CRM systems, so it’s easy for people to make up activities to meet personal compensation levels and maximize their compensation.) This is likely exacerbated in the current uncertain environment, requiring additional governance even for firms that already have an activity component.
- Make sure your firm and your clients want the type of activity you plan to incentivize. Some financial advisor teams have asked firms to switch to many-to-one sessions or reduce activity frequency during peak hours so their advisors have time to meet with their own clients. However, firms’ traditional activity compensation designs may encourage a wholesaler to request one-on-one meetings. Additionally, most activity-based plans are very successful in driving what they ask the sales team to do. Make sure that that activity fits with your strategy and doesn’t unintentionally undercut past coaching.
- Be flexible with meeting platforms. Many asset managers and broker dealer firms choose their video conference platforms based on preferences and security, which could cause issues. For example, Barron’s reports that some asset managers have banned the use of Zoom for security reasons: Morgan Stanley, a key broker dealer client for most asset manager wholesalers, prefers using Zoom. Similarly, UBS has banned Zoom unless a client requests it. Don’t insist your wholesalers use Zoom, Microsoft Teams or WebEx for a meeting unless your concerns around compliance and security trump the value of meeting with the advisor.
- Set appropriate activity goals for the current environment. Even firms with existing activity metrics are revisiting their activity goals. The key questions are how you should adjust from historical norms, and how metrics should differ across different areas of the country. This typically depends on each firm’s readiness to switch to a completely virtual environment and their clients’ preferences and availability. In this unprecedented sales environment, creating a process to regularly review expectations while adjustments are being made will be as valuable as ever.
- Develop more frequent reporting and oversight expectations for wholesalers and managers. Sales managers are more interested in activity data than ever before, even requesting real time updates because they’re the best way to identify potential challenges and people who are adapting well. This is only exacerbated when introducing activity metrics to compensation. To make matters worse, there are system- and user-created errors that result in activities not being reported. Conduct reporting as frequently as you can and create an auditable process in your sales compensation performance system to enable overrides and exceptions when systems go wrong. This will help you meet your audit team’s expectations when introducing this new metric.
Every compensation metric, especially activities, comes with its own challenges. By following the steps above, your firm will be well positioned to take them on.
On May 12, Jason Brown, leader of ZS’s financial services practice, will host a webinar with Varicent to offer advice for financial services companies and asset managers on picking the best discretionary metrics, goal-based metrics and adjustments to commissions. Click here to register for the webinar.