As the job of branch managers grows increasingly complex, brokerage firms are grappling with questions about how their managers should be compensated. At many firms, branch managers are no longer compensated in commissions based on branch revenues; today, most BOMs get a salary and bonus, calculated using factors like gross and net branch income and recruiting activity.
But so far, there is no industry standard for calculating these compensation packages. Many industry insiders believe there should be, but they differ on how much compensation should be tied to branch revenues and growth.
At the very least, firms need to set clear and consistent performance guidelines for managers that are tied to compensation, says Rob Brown, founder of EncoreAdvisor.com, a consulting firm for financial advisors, branch managers and their firms. “The role of BOM has become a moving target based on the latest compliance scare, recruiting push, or fear of a profitability shortfall,” Brown says. “Home and regional offices seem to be constantly maneuvering as to which responsibilities should be centralized, and which should be pushed out to the branch level. To be effective, branch mangers need to have a clear set of expectations, and these expectations should not change on a whim.”
This strategy would help managers stay focused on the big picture, he adds. “Too many managers (especially new ones) turn themselves into financial and compliance bureaucrats,” he says. “They micromanage, and forget that their primary focus should be on the top line growth.”
Brown feels the best compensation formula would be a combination of salary and a bonus based on branch profitability, top line growth, recruiting success, satisfactory compliance reviews and advisor appraisals. And then the pay formula should be locked in, Brown says. “Firms should stop hiring branch managers as if it was a ‘year-to-year’ job; it is a long-term career,” he says.
Andre Cappon, president of The CBM Group, a financial services research and consulting firm based in New York, agrees that a clear salary and bonus formula should be created based on multiple factors. Cappon suggests that firms create compensation “scorecards” to measure BOMs’ performance along multiple lines, such as revenue, profit, growth, training and recruiting. “I see it as a grid of criteria,” he says. “Because a strong branch manager must excel at trainee selection, training, recruiting experienced producers, and motivating and leading producers.”
Chip Roame, managing principal of Tiburon Strategic Advisors, a Calif.-based industry research and consulting firm, is a bit of a contrarian. He thinks manager compensation should be based on branch assets, and assets alone. “I think that brokerage firms will increasingly need ‘professional’ managers who are compensated based on the assets of their branches—not revenues or anything else,” says Chip Roame; “If the industry wants to be seen as a profession, it should compensate its leaders like professionals—not on commissions,” Roame says.
The problem with calculating branch manager compensation based on branch revenues rather than assets, he says, is that it gives branch managers incentives to encourage churning, and overselling in client accounts. “Schwab compensates its managers based upon branch assets,” he says. “The lead partner in a CPA or law firm gets a salary. But in brokerage firms, the leaders get commissions. What does that say about the industry?”