Managing cashflow and controlling fixed costs is extremely important for growing wealth management businesses. Firms that therefore rely mainly on large salaries and bonuses to attract and retain the best people are likely to encounter problems in operational flexibility, regulatory capital resourcing and cash flow management.
Here are five tips to help wealth management businesses become smarter in how they reward and motivate their people:
- Offer more than just cash and shares – Non-financial rewards, such as differing work experiences and flexible working, can be just as important as financial ones. For some employees, those ‘other’ benefits will be more attractive; millennials are more willing than others to sacrifice hard cash for additional annual leave. Putting in place a proper appraisal system is also important for such individuals, whom are more likely to want to see an intrinsic link between performance and recognition, as well as being offered the chance to manage and drive their careers.
- Deliver on promises– One of the most powerful ways of motivating and retaining key people is to offer a form of equity, or shadow equity in the business. However, if you are going to do so then it is important that you deliver on your promises. In our experience failure to deliver on equity schemes has one of the most detrimental effects on retention on key people. As a further point delaying implementation is usually more expensive in the long term, as schemes are usually more expensive to put in place for more mature or complex businesses. Delivering on promises in the short term will allow firms to take advantage of the more favourable tax position over the longer term.
- Consider demographics – Not all your staff will value a share plan giving them generous equity entitlements or equivalent value at the time of a business exit, particularly if it is seen as an event far in the future. It is important to accept that different people want different things and to acknowledge that in the current era, some employees may only be with you for a shorter period. So consider how best to motivate and reward them to get the best out of them during that time.
- Tax efficiency…and beyond – Taking advantage of tax efficient reward plans (equity or otherwise) is important and many employers will want to ensure that approved plans are utilised where possible. But think beyond the ‘straight and narrow’ of tax efficiency and decide what you want to achieve from offering rewards, rather than trying to shoehorn something into a plan because it is tax efficient. Benefits must drive the right behaviours at the right times for your organisation. Allowing employees to choose their own benefits from a platform of options is extremely powerful – protection products, including health insurance and dental cover, are popular with some workers, but are not favoured by all.
- Know when to outsource– Wealth management businesses can gain from the buying power of consultancies when the provision of employee benefits is outsourced. Many firms however get to a certain point when it is more cost effective to bring this function in-house. Once this decision has been made it is still worth maintaining relationships with external consultancies. While wealth management firms can look after the administration of benefits in-house, advisers can provide valuable guidance on the overall strategy, as well as continued access to ‘bulk’ buying power. It’s about maintaining the right balance at all times.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.