So, evidently, my last blog caused quite the stir-up when I suggested that the activities and roles of wholesalers were changing due to COVID. The general feedback was:
- Executives and consultants thought I was spot on, and they are already having internal discussions on how to move forward.
- Wholesalers and sales managers believed that it was an overreaction and that their relationships would justify their compensation.
Honestly, both observations are correct, but I think it is somewhat blind not to acknowledge how Management (who controls compensation) views the current situation of wholesaler activities versus firm-wide results.
First, look at the ongoing trend in wholesaler comp. It has consistently gone down over the years for a variety of justifiable reasons (margin compression, cost of doing business, etc.). Second, Management is quickly trying to figure out a way to create a compensation structure that drives the specific activities they want you to focus on. This will ultimately mean that your total compensation derived from commissions will get smaller, and your bonus component will increase. And, this trend will continue for many years. Also, if you do not currently have a bonus component, you almost certainly will by 2021.
Usually, the biggest mistake that asset management firms make when dealing with compensation is that they do not engage the sales team in an effort to learn what is the reality in the field. They decide that net sales are an essential metric, so they introduce a new “net” component into the bonus structure. But they never ask the question, “Can a wholesaler really control redemptions?” Which, by the way, is a very valid question. What if the Portfolio Manager is having a tough run? What if the client needed the money? Let’s face it, if the product performed well (which wholesalers do not control), then redemptions would most likely be minimal. So, having these conversations and being transparent throughout the process is the only way to do it. The worst mistake a management team can make is to introduce a compensation plan without wholesaler input. While Management can disagree with the input, and even override it, they still need to involve the wholesalers in the conversation. That’s what creates loyalty and a strong corporate culture. Almost every firm I have talked with is currently trying to reconfigure their compensation plan and, for the most part, their sales folks are being kept in the dark. This dynamic causes an unsettling, combative culture of “us versus them.” How difficult is it for a firm to set-up a compensation committee where they can have an open dialog on matching firm priorities to wholesaler activities?
Conversely, wholesalers need to sometimes take off their “sales hat” and put on a “management hat.” Pretend it was your firm and ask how you would run the business. Salespeople tend to live in very siloed spaces…and for a good reason, given they are usually on their own with very little interaction with the entire firm. If you (the wholesaler) were running a firm, what would your priorities be? How would you try to drive these priorities? Take a step back and ask yourself, what changes would you make if you were CEO of this organization, knowing your goal is to maximize profits? What if your compensation was based on the overall profitability of the organization? This would probably cause a different mindset in how you approach the compensation components along with the underlying conversations.
Lastly, the wholesaler role is vital to any organization that places a priority on raising and retaining assets. I have always valued the role and believe it takes an exceptional skill set to do it effectively year in and year out. This role will never go away, but it will only reward the very best as the required activities continue to evolve, along with the pool getting smaller.