It's stunting advisory firms, but here's how to find a better way.

    My team is in the midst of our 2007 compensation study-the biannual study in which Moss Adams surveys the advisor industry to learn about how-and how much-advisors are paying themselves and their staff. In an initial examination of the data, I continue to be surprised at how many organizations are paying advisors based on the revenue they personally generate-a compensation model driven by paying a percentage of an individual's "book"-paying them on their "personal production."

I know those words-"book of business" and "production"-offend many advisors, but even those advisors are paying their owners and advisors on this basis. It is time for a new way, and for brokerage-model compensation to exist only in transaction-oriented firms.

The eat-what-you-kill, production-based compensation model inevitably promotes personal development of business and thus implicitly undermines teamwork, integration and sharing of clients, ideas and knowledge. The logical extension of this compensation model is the phrase "my clients," shortly followed by "my practice." This means that for any firm that is trying to create an institutionalized and team-based model of client service, the production-based compensation model will achieve the exact opposite of what the firm is trying to achieve. Nonetheless, many firms continue to do exactly that, whether by virtue of inertia or simply by not seeing alternatives.

There are organizations-or individual positions-for whom the eat-what-you-kill model is a good fit with the organization's strategy, positioning and desired culture. But other organizations are attempting to build businesses that are in direct conflict with this method of compensation. Many advisors are trying to build businesses that are different from the brokerage firms from which they evolved or against which they compete. Yet their compensation plan-the number one driver of behavior and the number one communication tool the firm has-still actively supports the model they are trying to evolve away from. And it supports only that model. Though I have seen hundreds of advisors try, I have never seen a firm build something other than a personal sales culture with an eat-what-you-kill compensation model.

I have nothing against the brokerage model, and nothing against brokers. I think this compensation plan is the right one for some organizations, and the right one for some positions in other organizations. But it is not the right compensation model for advisors in a planning or wealth management firm that is trying to build a team-based culture and an institutional brand. It is not the right model for investment management firms that are trying to promote something other than individual books of business and individual-focused behavior.

There are some behaviors and outcomes that the eat-what-you-kill model promotes, which many organizations see as positive and want to encourage. Namely:

It promotes individual accountability.

It shifts the compensation risk from the firm to the individual.

It rewards superstars and punishes underachievers.

It allows for independence and for people to excel at their own pace.
But not all of the behaviors the eat-what-you-kill model promotes are positive or healthy for an organization. These are the symptoms that arise that point us directly to the firm's compensation plan as the root of their pain:

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