Brad Johnson: Welcome back to another episode of Do Business, Do Life. Today, I’m excited to get into something, I want to help all of you financial advisors out there avoid. And that is three compensation mistakes I’ve seen happen over and over and over, and what to do to absolutely avoid it. Because if there’s one thing that can absolutely sour a relationship in this business, it’s not getting the money right. And specifically, today we’re talking about with your team. And so, when it comes to scaling a business bigger than you, it’s all about both attracting and retaining great talent on your team.
And I want to start with a story today. This actually took place probably close to 10 years ago. And I think there’s a valuable lesson in it. And this was an advisor that I worked with out of California at the time. He was just getting his practice off the ground. This was probably his second or third hire, I think, he made in his firm at the time. And as many of you remember when you were just getting started out, it’s tough that first time you have to hire and you look at what a salary costs, you look at what benefits cost. It’s a scary thing.
And this advisor, the mistake he made is he took a compensation model. And he looked at the problem of today. And he didn’t look out into the future. And he took a new business person on his team. So, primarily her job was to fill out paperwork, process applications, move assets over when new clients would join. And one of the things because as you get started, there’s not a ton of cash in the bank, he said, “You know what I will do? I will just pay you 5% of every case that I close,” because she was doing the paperwork, and he looked at it and he said, “Hey, based on the math, based on the volume that I brought on last year, that’ll be 50k or 60k, but the cool thing is, I’ll only have to pay that when the money comes in.”
So, logically, you think about it like, okay, that makes sense. Well, here’s the issue. He was solving the problem for today, but he wasn’t future casting or modeling. If this business grows and evolves and we continue to scale, what that looks like a year or two years, three years out. And here’s the after part of the story. He called me a couple of years later. This was after the compensation model had been in place. And he said, “I think I have a problem. I just did the math and I paid my new business lead,” actually, his only new business person at the time, “$200,000 last year.”
And by the way, keep in mind this is 10 years ago. Probably, the average rate at that time in his marketplace was maybe $50,000, $60,000 a year. So, he had more than tripled the average salary in that role. And it was simply because he had not futurecasted/forecasted, what happens as we grow, as we evolve. And by the way, this is a common mistake I’ve seen done dozens, if not hundreds of times, at this point.
And today, what we’re going to get into is three of the biggest compensation mistakes I’ve seen happen over and over, and how to avoid them and avoid stories like that. The sad part of that story is when this advisor had to course correct a compensation model that did not work and give a pay cut. Obviously, you all won’t find this as a surprise, but that employee decided I’m going to leave. And that’s, I think, just a life lesson. You can always give a pay raise, but if you give a pay cut, you’re most likely on a short window for that employee sticking around.
So, here’s the three lessons we’re going to get into today. Number one, how to make sure you don’t solve for today versus solving for tomorrow, so looking down and just solving the problem of the day when it comes to compensation versus looking into the future. Number two problem that we’re going to get into is creating a compensation model that does not match the role. And number three, creating a training model that mirrors the compensation growth path.
And so, let’s just dive in. Number one, so a little bit of that story previewed this one, oftentimes I see advisors out there, they’re solving for the problem of today. Oftentimes, they’re hiring way too late, after working 60, 80 hours a week and you needed the help two or three months ago. And so, it’s very much a shoot, there’s a fire today. We’ve got to put it out. And so, you’re just getting people in as quickly as you can and you’re literally coming up with compensation on the fly. And you’re not taking the time to futurecast, what is this career path? What does this look like a year or two, three years out?
By the way, we’ve been guilty of this ourselves. Here at Triad in the early, early startup days, a lot of times when you’re looking around, there’s two or three people in the room and you need all the help you can get, some of those systems aren’t in place. And my recommendation would be put them in place as soon as possible to avoid these mistakes.
And I heard it said a long time ago. So, back to that story I opened with, part of the symptom of that is you’re looking at your team as an expense versus an investment. And if you want to attract A-players, that’s one of the things we say at Triad is A-players only. We want the absolute best-in-class talent. Guess what? They’re not cheap. But from my experience, an A-player is worth three or more C-players, maybe 10, because they’re passionate, they’re driven. And that’s why we focus on A-player talent. And the way you both attract and keep A-player talent is having attractive compensation. I mean, it’s not rocket science. So, look at your team members as an investment, not an expense. And you want to focus not on today, but out into the future.
I’ve heard the analogy said, if you try to get from point A to point B by walking and looking at your feet, who knows where you’re going to end up. But if you look into the future or into towards the destination, you may take a wrong turn left or right, but you’re going to end up where you want to go. So, speaking to the power of having a vision and then making sure your job descriptions and your compensation match that vision and the career tracks that that can create, so people can get excited to be on your team today, but also where they’re headed.
Another thing that’s a common symptom of the thinking about today versus solving for the future or the 10x sort of mindset is when you say compensation, you’re using the individual’s name, hey, here’s what we want to pay Joe or Sally versus using the role. You want to compensate based on the role, the job description, not on the individual or person. That’s how you make it scalable. That’s also how you remain unbiased and make sure you have fair pay for the task at hand.
And I kind of tease this a little bit, but think 10x thinking versus 1x. So, imagine if you have one sales person, imagine if you’re the only salesperson on your team, you’re the only advisor. And someday, you want to have a second advisor, so the weight of all the revenue is not on your shoulders. Well, oftentimes what I see the first non-founding salesperson or advisor, you think specifically, what am I going to pay Joe? What can we do here versus thinking 10x thinking? What if there were 10 additional advisors that I worked with? How would I need to build a compensation model that both works for one, but also works for 10 as we scale and grow this firm, and also stays consistent? Because that’s what you can’t have, you can’t have two people doing the same role where one is paid very differently than the other. It’s only a matter of time before that blows up.
Okay, let’s get to point number two, creating a compensation model that doesn’t match the role. I remember early on at Triad, we hired a very, very talented individual. Here was the mistake we made. They had no job description. So, they kind of wandered around for two or three weeks, kind of getting and stumbling into different offices and kind of quite honestly, disrupting and creating a lot of just chaos, quite honestly. But whose fault was that? That was ours. We hired a great talent. We had no job description. And I think that’s the key thing.
Back to the last point, you have to have different compensation for different roles on the team. Salespeople in our industry typically get paid on commission or recurring revenue, the book of business that they bring in because you want them to be driven. As Charlie Munger said, show me the incentive and I will show you the behavior. And that’s really how it works.
And so, you want salespeople to be compensated by doing their job, bringing on new assets. And non-salespeople, you want to be compensated based on salary, typically, with maybe some sort of bonus tied to the firm’s overall total production or goals for the year. And oftentimes, when you don’t ensure that compensation aligns with the specific role or job description, it just doesn’t work out long term.
The other thing you can do is you can have different types of compensation. So, we talked about salaries for non-salespeople. In fact, Ryan and our team, one of the biggest hurdles that we run into a lot is, as you all know, to ramp up a book of business takes oftentimes a year or two before the compensation follows. And you can create things like floors where, when you bring somebody on, you’ve got a window where they train. And then once their compensation basically gets above the floor that they were paid, now they go to a commission or fee-based role, because now they’re over kind of that minimum floor that they needed just to bridge getting a book of business up off the ground.
Another thing you can do, say you’ve got a team member on the new business side that’s just you guys are having a crazy month in a good way and they’re overworked, they’re putting in additional hours overtime, you can do something called a spot bonus where you give them a bonus for excellent, kind of going above and beyond during a season. And because oftentimes what happens is if you go to a salary or a pay raise based on a short-term season, it just doesn’t match. And now, that’s locked in for the rest of their career, whereas a spot bonus, that actually speaks to that sprint that they were in where they performed. And so, you’re rewarding them for that time period.
Okay, let’s get to number three. A training model that mirrors the compensation growth. And here’s another story I’ll share with you. This was just a couple of years back, and there was a founding advisor. He was trying to add his first other advisor to the team and what this gentleman had done prior to giving to the firm, he was really a service advisor. He hadn’t done much sales. He was kind of just taking care of people, doing reviews, doing allocations, kind of nerding out on the portfolio. The problem that this advisor made, he promised him a sales role. And so, he kind of said, “Hey, here’s your compensation. Here’s what you could make.” The problem was this individual had never actually done that role. He had done service, which is absolutely something we often see.
We talk a lot about a Triad advisor model, and that’s what we coach on for Triad members. Those that haven’t heard, Episode 2, about an hour into that, my co-founder Shawn Sparks and I kind of dissect that, selling advisor, service advisor, planning advisor, really the three different types of advisors and the different types of compensation that matches those roles. But for today, this advisor was in a service role, but he had been promised a sales compensation. And so, what that led to is he resisted doing the service role because he’s like, I want to sell, I want to make that.
And so, one of the things that we’ve seen that works really well, any new advisor to any new firm, there’s going to be a learning curve. There’s going to be a difference in sales process. There’s going to be a difference in planning process. And if you just throw somebody into the deep end hoping they can swim, one of the biggest concerns and frustrations I’ve seen for founding advisors is when they swing and miss on 10 leads that you paid a lot of marketing dollars for or burning referrals, that’s very, very frustrating.
But at the end of the day, whose fault is that? You, the founder, you didn’t have a proper training track to get them up to speed. So, oftentimes what we see don’t promise the selling advisor role step in, it’s a training track. We start you in service. You will ride shotgun with me. And now, you’ll be in charge of the recap emails. Now, you’ll be in charge of coordinating building the plan with the planning team. And the cool thing, that gives you three, six months to get up to speed on our appointment process, exactly how we do it, how we do it differently, the verbiage I use, how we run appointments. And that’s what have been one of the most fail proof ways we’ve seen to where you can turn great advisors and give them a training track and to be a great selling advisor in our business. And typically, with a three to six-month window of shadowing and a dialed-in process, that can be done really quickly. And now, you’re setting your team up for success and not burning a bunch of marketing dollars as they swing and miss on appointments.
So, hopefully, this is helpful. This is just a quick rapid download. Those are three really common mistakes I see. There’s probably another hour worth of others I could share. One of the things that I don’t have time to get into today is an exercise called Ladders and Levels, where you actually can build out organizationally. An intern might be a 1, a founder might be a 7 or 8 with actual pay ranges, roles, responsibilities, spending limits, different things like that.
But if that’s something that could be useful for you all, we actually just recently did this at Triad as we approached 100 team members. Just put in the comments “Ladders and Levels” out on YouTube, and if we get enough of those, maybe I’ll do the next episode on that. If you’re listening on audio, maybe just hit the DBDL hotline and just put “Ladders and Levels” and then that way, I’ll know, hey, that’s of use to y’all and can really help you.
But lastly, if this is something that you need help with, I heard it a long time ago, a mentor shared with me, said, “Hey, oftentimes, you’re fortunate enough that when you were starting out or you were learning, somebody sent the elevator down for you. Make sure once you ride it up a bit, don’t forget to send it down for others.” So, one of the things I typically do on these solo episodes is open up a couple coaching slots, assuming my week has time. But if that’s of interest to you, you need help on the compensation front, just text the DBDL hotline. If you’re listening to this on audio, I know it’s on the intros, the show notes. If you’re on YouTube watching this, just go ahead and just put a comment in the chat and we’ll message you, we’ll DM you privately so you don’t have to blast that publicly. And we’ll see if a spot is open to be able to help you out. That’s the least I can do as a thank you for you all helping build the show and all the kind comments and reviews that you’ve left over the years.
So, as a reminder, what we got into is three of the most common compensation mistakes we see financial advisors make over and over, and really, three things to avoid. So, number one, solving for today versus solving for 10x growth or tomorrow or your vision, your future. Number two, creating a compensation model that doesn’t match the role or basing that on an individual versus a job description. And number three, not having a training model that actually mirrors the compensation path or the growth path for that individual. So, hopefully, this was helpful. And let us know on your reviews and on your comments out on YouTube, and I will catch you on the next one. Take care.
