Findings from the Kehrer Group Survey of Compensation of Directors of Bank-Based Advisors
The landmark BISA study Smart Investment found that increasing the number of bank or credit union customer/member households with an investment relationship by 1% increases income from deposits and loans by 14%. Do financial institutions incent the directors of their advisors to increase investment account penetration of households?
Revenue from investment services is the dominant factor in incentive compensation of the executives who direct investment services in banks and credit unions. Two-thirds of the plans studied determine incentive compensation based on the firm’s production, either solely or as a Key Performance Indicator (KPI). That was one of the key takeaways on incentive compensation from the Kehrer Group Director Compensation Study, published in November.
The majority of plans, however, use several factors to determine incentive compensation, usually delineating specific KPIs. 13% of the plans use a scorecard with assigned weights to each KPI.
The plans use a wide variety of KPIs, with no single dominant factor favored beyond production. The most common KPIs are net income (28%), performance of the institution (21%), and advisory revenue (11%). Compliance, advisor recruitment and retention, and members served each factor into only 9% of the plans.
It appears that the institutions focus incentives for their directors on top line performance results, not on the activities that drive those results such as financial planning, client and asset acquisition, and growing the advisor force. Only 11 % tie director compensation to increasing investment account penetration of the institution’s customers/members. Indeed, the study found evidence that banks and credit unions actually reward their investment services directors to reduce advisor headcount. Of course, adding advisors is the most direct way to increase revenue.
While the incentive plans for their directors reveal that financial institution management prizes revenue growth, the incentives might be misaligned, by not incenting directors to create the foundation for growth.
About The Kehrer Group Director Compensation Study
In response to many requests from the bank and credit union financial advice community, Kehrer Group conducted a survey of the compensation of the executives who manage the investment services business in their institutions. A total of 55 executives participated. They were asked to provide their compensation plan, their actual compensation for 2023, and details about their span of control, tenure, industry experience, professional designations, and more.
The titles of the positions covered varied widely, including CEO, President, Director of Wealth Management, and Program Manager. The job description included management of the advisor force directly, or through management of one or more sales managers, oversight of operations and compliance, and P&L responsibility to the institution.
We then matched the participating executives against data about their businesses and institutions from the 2023-2024 Kehrer Group Annual Benchmarking Survey. The resulting dataset supported sophisticated statistical analysis to understand the key drivers of compensation for the director role.
The study is available for $1,000 for firms with less than 25 advisors and for $2,000 for larger firms. Participants receive the study with a 50% discount. For further information and to purchase the study, contact tim@kehrergroup.com