Although they have spent much of the year cutting costs, many advisory firms are planning to give raises to their employees next year.
Although they have spent much of the year cutting costs, many advisory firms are planning to give raises to their employees next year.
In fact, the number of advisory firms hiking pay is likely nearly to double in 2010 from this year, according to research by Matthew McGinness, principal of Best Practice Research, a consulting firm that conducted the 2009 Moss Adams/ InvestmentNews Compensation and Staffing Study.
The study, which surveyed 750 advisory firms online in May and June, showed that 39% of firms plan to give non-merit-based pay raises next year, up from 22% this year.
Giving raises is an important way to keep valuable employees who toughed out the recession, maybe even taking a pay cut, and now might see other job opportunities as attractive.
Though raises for financial advisers will vary, Mr. McGinness said he anticipates that firms will give an average raise of 3% to 4% next year.
Consultants on salary issues at Compensation Consulting Consortium and Quantuvis Consulting Inc. also predict that raises will be about 3% to 4% next year.
Richard Weylman, president of an eponymous consulting firm, said firm principals may even give their best employees raises of up to 7%. And Paul Sorbera, president of Alliance Consulting Ltd., said he thinks some support staff members will get raises of up to 10%.
“Most people think their support staff deserves a raise,” Mr. Weylman said. “The clients deal more with the staff than they do with the financial adviser.”
Makeup raises
Dan Inveen, principal at FA Insight, predicts that nearly 50% of advisory firms will offer raises next year to employees because so few gave raises to their employees this year.
“I would suspect that firms are going to be thinking more seriously about the use of incentive compensation going forward,” he said.
Firms should offer more compensation to their best-performing employees rather than giving non-merit-based pay raises to everyone, cautions Mr. McGinness.
“The good news is that firms are feeling we've turned the corner,” Mr. McGinness said. “The downside is, some firms may give pay increases that they regret later on. These business owners love their staff. I've met advisers who bought cars for their staff members.”
Rewarding employees based on individual performance is extraordinarily important to the advisers at Fox Joss & Yankee LLC, said Marjorie Fox, an adviser and partner.
To show its appreciation, her firm, which manages about $250 million, gives employees a one-time, individual-performance-based incentive of up to 10% of their salary. In the past, it also gave out firm-based incentive rewards, but won't be doing that this year because profits don't exceed set levels.
Fox Joss also is looking at evaluating base salaries and may raise them for some employees next year, Ms. Fox said.
“We don't give out an automatic cost-of-living raise, but we have several folks whose responsibilities have increased, and when their responsibilities increase, we think pay should too,” Ms. Fox said.
Mark Snyder, president of Mark J. Snyder Financial Services Inc., which manages about $200 million in assets, said there's no doubt in his mind he'll give raises to his eight employees next year.
“It's not that scary now,” he said. “Last year, it was scary because we were going into 2009, and we had no idea what would happen.
Compensation to his employees will likely go up 3% to 4%, he said.
Retention an issue
Some advisers may need to consider even higher raises for employees who might be lost to larger firms, said Mark Reilly, a partner at Compensation Consulting Consortium and SayOnPayAdvisors.com.
“There's more risk for employees at a smaller firm, and to offset that, there needs to be more in terms of compensation,” Mr. Reilly said.
Also, many staff members work countless hours and are forgotten about, said Rich DeSalvo, president of DeSalvo Consulting LLC. He believes that paying an employee more doesn't cost the firm that much but will instill loyalty and motivate the person to work even harder.
“You know as well I do that these people make the firm run,” he said. “If they all left, these firms would be in big trouble. This has been the neglected group. That worker bee will work even harder for you, if they feel they're being appreciated.”
E-mail Lisa Shidler at lshidler@investmentnews.com.
