What's your worth?

THE YEARS since the onset of the global financial crisis (GFC) have not been kind to financial service providers’ pockets. Consumer outrage at bonuses and the global finance sector’s excesses are partly responsible for the post-GFC trend towards increased government regulation in a number of jurisdictions. In Australia, this regulatory change and market volatility have forced many professionals to seek shelter under an institutional umbrella, while at the top end of town, lavish bonuses are no longer a given and many support staff are just happy to have a job.

In two sections, this special report looks at salaries in the financial planning and funds management sectors over the past 12 months, providing a range of commentary and context to help assess your worth in a rapidly changing world.

Stuck in a holding pattern

Whether or not financial planning businesses are recruiting tends to boil down to two variables: the state of the financial markets and the level of regulatory uncertainty.

The first part of the equation was shaping up well this year. But things took a turn for the worse in late May, as the Australian stock market took a tumble.

On the regulatory side, the first half of the year saw planning businesses scrambling to meet the 1 July implementation deadline for the Future of Financial Advice (FOFA) reforms.

Every planning practice worth its salt has by now put its FOFA systems into place, and is currently grappling with the delivery of fee disclosure statements and compliance with the ‘best interests’ duty.

All the FOFA regulation has now been delivered, with the last piece of the jigsaw – final rules covering the grandfathering of conflicted remuneration – passed through federal parliament late in the evening on Friday 28 June.

Nevertheless, this year’s Financial Recruitment Group (FRG) salary survey found something of a consensus in the financial planning industry that there is still plenty of uncertainty about FOFA.

According to FRG national manager for research and consulting Lena Coates, the general view in May was that many financial planning businesses were not ready for the changes and were putting a lot of their hiring decisions “on hold” – although they were replacing any vacancies created.

“[The view was that] post-1 July, a lot of businesses would be struggling to cope, putting into question the viability and value of those businesses,” Ms Coates says.

Many of the planners surveyed were either unready for FOFA or were hoping that much of it would “go away” with a possible change of government, she adds.

“The past 18 months have seen a lot of practices move into the institutions because there is fear of the new world and [the belief] that they would get better support in a larger organisation,” she says.

According to Forte Asset Solutions director Stephen Prendeville, the current environment is “extremely difficult” and, for the most part, people are happy to stay in the jobs they already have.

“Whilst at the start of the year it looked like it was positive and we were coming into growth, confidence has been lost,” Mr Prendeville says.

Much of this is down to the retraction in markets in recent months which has taken things back to February levels, he adds.
“Everyone is focused on their internal processes – particularly with the ability to deliver on fee disclosure,” he says.

In fact, the focus on compliance is taking away from planners’ efforts to bring in new business.

“There’s not a lot of opportunity for growing funds under advice,” he says. “It’s more focused on what [planners] currently have.”

But according to head of strategic growth for BT’s Securitor and Licensee Select, Annick Donat, not everyone is stuck in a holding pattern.

“We are in discussions with many advisers and businesses that are looking to grow and want to align with a professional dealer group,” she says.

Ms Donat believes there is “still some consolidation left in the market”, but that is unlikely to affect the job prospects of the average financial planner.

“There will always be jobs for good financial planners. With every two in 10 Australians seeking advice, it’s not as if there will be a shortage of business,” she says.

Westpac Financial Planning and St George Financial Planning are also looking to increase their female planner numbers from 25 per cent to 45 per cent by 2015, Ms Donat adds.

Stagnant salaries

National median ranges for bank and non-bank salaried planners remain virtually unchanged from last year, according to the FRG survey.

"This is partly due to the performance of the market and the revenues generated. Companies just do not have it in their budgets to increase salaries,” says Ms Coates.

Salaried financial planners who work out of a bank branch can expect a total salary package of between $65,000 and $90,000 – which has been steady for the past three years across all capital cities.

When it comes to non-banks, Sydney, Melbourne and Brisbane offer the best prospects for planners, with median salaries ranging from $80,000 to $120,000. Sydney and Melbourne salaries are stable compared to 2012, while the top end of the salary range for Brisbane has increased by $20,000.

Perth non-banks are offering planners remuneration packages in the $85,000 to $110,000 range, while Adelaide and Canberra non-banks are offering slightly less than bank branches.
Salaries for senior financial planners are unchanged from 2012. The minimum a bank employee can expect is $80,000, with a ceiling of $155,000 in Sydney and Melbourne and $140,000 in the other capital cities.

Senior financial planners in non-banks are currently receiving between $110,000 and $150,000 in Sydney and Melbourne; $87,000 to $120,000 in Brisbane; $90,000 to $100,000 in Adelaide; $90,000 to $120,000 in Canberra; and $95,000 to $130,000 in Perth.

While base salaries are unlikely to change, there will probably be significant changes in the way bonuses are calculated and paid.

One of the salaried financial planners in the FRG survey commented that they are much happier with changes to their remuneration so long as they are consulted as part of the process.

According to Clearview general manager, distribution Todd Kardash, there is unlikely to be any upward pressure on employed planner remuneration over the next 18 months.

“Salaries will stay stagnant, and you’ll see short-term bonuses change significantly under FOFA,” he says.

The absence of volume-based rebates will mean institutions will have to come up with some “creative” ways to pay bonuses to their salaried planners, he adds, although it is unclear how short-term incentives will be funded if they have nothing to do with in-house product flows.

Bonuses will either be based on “ticking all the right boxes” when it comes to compliance and professional conduct, or approved product lists may eventually be reduced so that they only include in-house products, Mr Kardash says.

“If you become an employed financial planner, expect to write the in-house product,” he advises.

The upshot of the FOFA changes will be more consolidation in the industry as independent operators struggle to maintain their revenue, says Mr Kardash.

“The way FOFA has gone, with rebates being carved out from platforms, it’s going to make life pretty difficult for independents who don’t have a manufacturing arm,” he says.

But under the final grandfathering regulations, unveiled on the last Friday before FOFA’s implementation, financial planning businesses will have until July 2014 to revamp their volume-based bonus and incentive structures.

Toughing it out

The FRG salary survey found that 2013 saw “continued retrenchments and restructures”, that “will continue as businesses strive to remain profitable”, Ms Coates says.

“Market stability, along with the current political climate, have led to the majority of hiring decisions being stalled into the first quarter of the new financial year – and beyond,” she adds.

But according to InFocus chief executive Rod Bristow, the challenge for his advisers is less to do with the performance of the market than it is with “bedding down” FOFA processes.

While there is a “tail” of InFocus advisers who require a bit of work in order to be FOFA-ready, the InFocus network is generally optimistic about the future, Mr Bristow says.

“People who want to get out [of the industry] are likely to get out in the next six to 12 months, and that’s going to create more opportunities [for existing advisers],” he says, adding that the “wave” of consolidation that has been driven by the introduction of the FOFA reforms is set to continue.

“You can argue it was the regulator’s intent to take the bottom tier out of the market if you like, but regardless of what the intent was, that’s what is happening,” he says.

According to Ms Coates, consolidation within the industry is putting massive pressure on practice development managers to “deliver and build scale”.

And overall, according to Mr Bristow, the job market is going to be tough “for the next six months”, with planners having “essentially until the end of January 2014” to put their fee disclosure statement processes in place.

“As advisers go through that process, they’re going to make some decisions about whether or not this is an industry that they want to stay in,” he says.

If some of those advisers decide to go out and sell their businesses, that will create opportunities for younger up-and-coming planners, Mr Bristow notes.

“If I was a young guy leaving university today and I wanted to get into financial planning, I think the next six months would probably be pretty difficult,” he says. “But I do think that opportunities will open up from the start of the next calendar year.”

The cost of culture

FINANCIAL RECRUITMENT GROUP (FRG) managing director Judith Beck says respondents to the latest survey were the most negative about the year behind and were very uncertain about the year ahead.

“Whilst most agreed that business seemed to be getting better, they felt more disillusioned about what they were doing,” she says.

Respondents felt they had no engagement with their employer, while risk taking and entrepreneurship are a thing of the past, with several using the term ‘white collar manufacturing’.

Many said they felt that they were overworked, with employers failing to replace any staff who left the company.

“This year has been the worst year that we have seen in recruitment in 20 years,” Ms Beck says. “In the past six months, many recruitment firms have downsized or closed down, which is one of the first indicators of a stalled economy.

“We do believe, however, that after September things will change and feedback from the market is a ‘wait and see’ attitude.”

The perception that recruiting employers are spoilt for choice is incorrect because talented candidates are hard to move in this environment, adds Ms Beck.

“Money will not motivate in this environment and companies are not prepared to go outside of [their] salary ranges for anyone,” she says.

Some organisations are ensuring good communication flow and engagement with their staff and they will benefit when the market turns, Ms Beck continues. Those organisations have been successful at giving their managers the freedom to make decisions with responsibility and accountability but without too much red tape.

When the market picks up, a lot of people will want to change jobs just for the sake of it; people feeling they are overworked will want a change and will be more open to approaches.

“If organisations don’t work on their culture now, it will cost them in the loss of key staff in the future,” she says.
WOMEN IN THE WORKFORCE
FRG’s survey attracted responses from 100 women this year, from BDMs to those at general manager level, and found no discrepancies in salary levels between women and men, including for bonuses.

In addition, 92 per cent of women said they did not want to be part of an internal quota system, while the other eight per cent said they didn’t know, with respondents saying they wanted to get their next role based on merit rather than gender.
Ms Beck adds the Financial Executive Women (FEW) initiative, launched this year, has attracted several major corporations as sponsors.

Lines blurring

Salary ranges at the lower levels within funds management have seen a softening, with more business development managers now looking for work.

FRG director Conor Donoghue says that, as in previous years, some institutional, SME and boutique businesses started the New Year full of optimism, while others were more concerned about the challenges – but also the opportunities – that lay ahead.

“FOFA, the economic climate, cost cutting, financial pressure and consolidation were words that were consistently mentioned,” Mr Donoghue says.

Cost pressure trends, lack of market opportunities, legacy issues and the run-on effects of consolidation have continued, with a lack of culture, team morale and management realism about targets becoming increasingly larger issues, he adds.

“We have had stability in the salary ranges at the higher end, but in most cases we have some softening on the lower levels of salary ranges, which is to be expected due to market conditions,” he says.

Market conditions have stopped businesses being able to offer top quartile salary ranges, while internal promotions over the past 18 to 24 months have lowered salary levels in comparison to groups recruiting from external firms.

“While we have seen stability at the upper levels of general management positions, our research has shown a reduction in some of the salary ranges for heads of distribution [median $250,000 to $300,000] to slightly lower than previous years,” says Mr Donoghue.

In nearly all cases this was due to internal promotions, leading to comments that while people may have been promoted in title, they were still accountable for some aspects of their previous job as well.

National key accounts (median $190,000 to $220,000) and senior BDM salary levels (median $150,000 to $180,000) have also seen a slight reduction in salaries for new appointments due to internal promotions as well as the merging of roles in some cases, according to Mr Donoghue.

“We have seen the continued institutionalisation of some retail distribution teams and I spoke with numerous groups who have, or will have, a ‘one distribution’ policy in the future, where both retail and institutional teams will work together,” he says.

Bryce Doherty, head of wholesale sales at UBS Global Asset Management, also pointed to a convergence of institutional and retail BDM roles.

“At UBS, we moved away from the state manager BDM set-up some time ago; that’s becoming more common as you see the merging of retail/wholesale/institutional type of sales,” Mr Doherty says.

“Today’s BDM has to be able to sell to a multi-fund as much as to a planner running a $60 million business. So you need skills across the spectrum and there are plenty of people that can do that.”
This, he says, is partly due to the massive consolidation within the financial planning industry.

“You’ve got to look at them as one big account,” Mr Doherty says. “The guys who are in charge of Commonwealth Financial Planning are also in charge of Count and looking after the First Choice platform and First Wrap.

“One thing has led to the other – as shops have rationalised the number of BDMs they’ve got, the work hasn’t gone away, so BDMs have had to upskill to get across different paths.”

Meanwhile, according to Mr Donoghue, there were a few cases of lower salaries being offered to the BDM level (median $110,000 to $130,000) which at the lower end is down from $100,000 to $90,000 this year.

“This was most certainly due to internal promotions from support roles, higher level of supply in some sectors, as well as some groups being nimble enough to have a bigger distribution footprint with less experienced and therefore less expensive staff,” he says.

Bonuses a mixed bag

This year saw some people achieving more than 100 per cent of their potential bonus while others achieved no bonus at all, Mr Donoghue says.

In the 2012 survey, the average bonus was 50 to 70 per cent of the potential range, but that dropped to 25 to 50 per cent of the potential this year.

“In numerous cases, teams were hitting neither state nor national targets,” says Mr Donoghue, “but there were cases of managers speaking with real passion about their team’s hard work, their dedication and the fact that, in lots of cases, things outside of their control had adverse effects on the overall results – poor product offerings, market conditions or things such as big insurance payments blowing out profitability targets.

“While it was rare that BDMs were receiving no bonus, most managers were working hard to be able to reward their staff even if financial targets were not achieved. A lot of groups this year spoke in some detail about the behavioural and teamwork aspects of key performance indicators and I had more instances this year than in other years of this forming a real percentage of overall results.”

Aberdeen Asset Management’s managing director, Brett Jollie, agrees that there is a shift for bonuses to focus more on quality of work than quantity of inflows.

“It’s dangerous to have staff expect the same bonus year-on-year as a percentage of their salary,” Mr Jollie says. “A bonus is a bonus; it’s a discretionary bonus.”

Aberdeen has put more emphasis on activity as opposed to inflows, he adds.

“It’s very much a qualitative process,” he says. “[BDMs] need to be busy in terms of having a number of meetings and so forth, as opposed to just flows,” Mr Jollie says.

While in a successful business BDMs can just sit back and watch the money come in, the flipside is promoting a new capability that doesn’t have support early on – “but you can do a lot of work around that and that should be reflected”, Mr Jollie says.

Mr Donoghue notes there is a move towards more long-term incentives (LTIs) being offered to BDMs now than in previous years, which could have intended or unintended consequences for recruitment and remuneration in years to come.

“Some groups were offering portions of the annual short-term incentive (STI) to be converted into long-term share schemes and this was offered for differing reasons in each case,” he says. “One saw it as showing the team it was a ‘whole company approach to success’, another saw it as a way to ‘attract long-term commitment’, while a third saw it as a way to ‘lock in their staff so they couldn’t leave’.”

Distribution strategies shifting

When it came to key accounts, it is those with proven experience in winning model portfolio inclusions, portfolio construction and managing research house and rating relations who will be able to demand a premium salary, Mr Donoghue says.

Certain managers, however, felt the industry is “relying on mandated flows too much, to the detriment of their strategic, negotiation and relationship skills with the adviser community”, he adds.

One manager outlined a strategy to focus on under-serviced, non-metro advisers. Increasingly, BDMs won’t have the resources to spend time outside major cities, which worked to the advantage of this group.

“Another group spoke about investing more resources in telephone-based relationship management teams in the future for ongoing support, while BDMs will focus more on hunting for new opportunities,” Mr Donoghue adds.

Franklin Templeton director of advisory services Jim McKay says in the post-FOFA environment, larger advisory groups will increasingly be looking for more from their service providers, including fund managers.

“Things like more educational content are critical, given FOFA’s higher education requirements,” Mr McKay says. “Being able to support more education, being able to work with your strategic partners, the key accounts, to deliver some of that is important.”

Mr Donoghue says one group is investing more in client servicing, including granting clients access to portfolio managers and corporate social platform campaigns.

“While this may be easier for bigger and more resourced global groups who have access to pooled teams, it is interesting to note groups are thinking outside the square in strategy terms,” he says.

Franklin Templeton benefits from being a global company able to supply its Australian arm with tools like educational and social media content that can be distributed locally, according to Mr McKay.

“We’re certainly seeing the breadth of what our marketing teams’ and key account teams’ [offer] is broadening,” he says. “We see that as an opportunity for a firm like us that has a huge amount of content available and can make sure it’s applicable and appropriate for the Australian marketplace.”

Cost compression not limited to salaries

Mr Donoghue says the survey found continuing downward pressure on “everything financial”, including sponsorship, conferences, marketing and headcount.

“We had numerous people within the key account management areas talk about how every dollar of spend is scrutinised and how they need to present a business case for every conference and sponsorship situation, with an expectation of a quickly defined return on investment,” he says.

Some individuals said the reduction in sponsorship spend has had a negative impact on their ability to win business, achieve flows and therefore achieve higher bonuses, with a flow-on effect to the business development teams.

“We have also seen middle management almost disappear in a lot of groups,” he adds.
There is now more accountability, maybe due more to consolidation of roles than because staff have larger roles with a higher salary.

BDMs are also becoming accountable for more – and more things on which they are not necessarily measured – which can cause very real problems, especially if the team feels their leader “doesn’t understand what we do, how we do it, or why we do it”, according to Mr Donoghue.

“While there [were very mixed] views on the next 12 months, a few groups spoke positively about the fact they were ending 2012/2013 with a more positive view as opposed to enforced restrictions,” he says. “But they also tempered this by saying the year has been so mixed and staggered that it’s hard to have any real sense of authority on what the future will bring.” «