How not to reward advisers

The risk of fianncial advisers being incentivised to sell.

Justin Modray

Published on 04 September 2020

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I have just read a trade publication article that highlights a key issue in our industry – how advisers are paid.

The article reports a national IFA firm striving to introduce a new pay structure for its advisers, who will have a ‘scorecard’ that is 70% based on the revenue they pull in and 30% on the quality of their advice. And advisers who do not generate at least £250,000 of annual revenue could suffer a 14% pay cut.

If we ignore advice for a moment and put on a business hat, this looks quite sensible. No business owner wants unprofitable salespeople. But it’s not that simple where financial advice is concerned. An adviser who brings in lots of business but gives poor advice is a liability that could be storing up major future issues (and client compensation claims).

More importantly, put on a consumer hat and this stinks. Would you want to be on the receiving end of an adviser desperate to hit their annual target, knowing their employer is more concerned with the bottom line than the advice they give?

This style of remuneration, whilst probably not uncommon, is likely to encourage the wrong type of behaviour. At its worst it may encourage some advisers to give blatantly bad advice to avoid losing a potential sale.

And there are likely other firms with even more sales orientated adviser pay structures, such as progressively bigger slices of the revenue pie, overseas trips and other enticing incentives.

In my mind the only way to remove this potentially unhealthy conflict of interest is to pay advisers a fixed salary, with future pay rises largely dependent on the quality of their advice and looking after clients well. Which is what we do. It means a traditional financial adviser would unlikely want to come and work with us, which I see as a good thing!