Hidden Costs of Legacy Advisor Compensation Systems
In today’s competitive financial landscape, attracting and retaining top advisory talent is paramount. While a competitive, transparent, and fair compensation process is foundational to this, C-suite leaders must ask a more critical question: Is our advisor compensation framework a strategic asset, or a hidden liability impacting our end-to-end revenue management cycle? For many firms, the answer is unsettling. Makeshift spreadsheets, repurposed generic tools, or inadequately designed platforms are often struggling to manage the intricate revenue streams of the wealth management industry. If your organization relies on such improvised solutions, it could be silently hemorrhaging millions in potential revenue and creating significant operational drag. It’s time to put your current advisor compensation system under a strategic performance review. The High Stakes of Inadequate Compensation Systems The dynamism of the wealth management sector – with its diverse transaction types, evolving fee structures, frequent M&A activities, and shifting regulatory demands – necessitates an exceptionally agile and robust compensation management solution. Without it, your firm isn’t just risking inaccurate payouts; it’s risking its strategic objectives. Consider these critical blind spots that may exist within your current framework: Beyond Basic Functionality: The Data and Integration Imperative Minimizing compensation inefficiencies and maximizing profitability demands more than basic calculation capabilities. It requires sophisticated software architected for: The Real Cost of Miscalculation: A Multi-Million Dollar Risk Consider a simple scenario: an advisor discounts a $100 service to $80. Your firm’s agreed share is 50%, or $40. An inadequately configured system might incorrectly pay the advisor $50 (50% of the original $100) and allocate only $30 to the firm. This single error directly erodes your profitability. Now, amplify this across thousands of transactions, customized incentives, complex split agreements, and performance-based payout tiers. Even minor, systemic misconfigurations can compound into substantial financial losses annually. In an industry laden with such complexities, the potential for value leakage is immense if your compensation engine isn’t meticulously engineered and managed. Transforming Compensation from an Expense to a Strategic Driver In an environment where a single basis point improvement can yield significant financial advantage, settling for a sub-optimal compensation system is an economic misstep. Legacy systems or generic solutions may offer a temporary reprieve, but they ultimately create a competitive disadvantage. By re-evaluating your compensation framework and partnering with solutions that offer deep industry insight and flexible, purpose-built technology, you move beyond merely mitigating revenue leakage. You unlock new pathways for sustainable growth, enhance advisor loyalty, and fortify your firm’s financial health. Just as an underperforming business unit demands executive attention, an underperforming compensation system warrants immediate strategic review. Is your firm ready to transform its advisor compensation from a potential liability into a strategic driver of growth? Contact us to explore how PureFacts can help optimize your revenue lifecycle. — James Iacabucci is the Director, Product & Engineering at PureFacts Financial Solutions, an award-winning provider of end-to-end revenue management solutions for the investment industry, helping firms maximize profitability, ensure compliance and deliver exceptional client service.
How Leakage in Incentive Compensation Programs Impacts Profits
Leaks are rarely a good thing, and hidden leaks are the worst kind. Homeowners know that a slowly leaking pipe or roof is about the last thing they want to discover. Car owners grow frustrated that a slow leak in a tire can be the hardest kind to fix. And you don’t have to be a boat owner to know, as Benjamin Franklin said, that “A small leak will sink a big ship.” Your financial services business may be losing revenue and profits in the same way, through a wide range of seemingly small inefficiencies, poor procedures, misalignments, and human errors in your compensation system and compensation program. These leaks are often written off as an annoyance, rather than a problem that needs immediate fixing. But over time, the leaks turn into losses and reduce your bottom line. “Watch the little things; a small leak will sink a big ship.” ~ Benjamin Franklin How Big a Problem is Revenue and Profit Leakage? Profit leakage – in this context – erupts from the unintended (or unnoticed) loss of revenue from your business and poorly optimized operations, resulting in a significant loss in overall profitability. Statistics vary, but it’s generally estimated that every company, regardless of sector, experiences addressable leakage in a range of 1 to 5 percent of EBITDA (Source: EY). In our experience, profit leakage is a considerable and often overlooked problem in the wealth management industry and has root causes that are behavioral, structural and operational in nature. Behavioral causes stem from actions that are induced, usually unintentionally, by the compensation, metrics and performance management program. Operational causes are often the result of business complexity and fragmented business processes. Finally, Structural causes relate to the design of the business model and/or the technology tools that support it and insufficient or unreliable data to fuel it. Firms may experience one, two or all these root causes, contributing to significant recurring loss in revenues and profitability if not addressed. We’ve identified the 25 ways in which your compensation system, procedures and program are likely allowing profit to leak out of your wealth management business. 25 Root Causes of Revenue and Profit Leakage When compensation and reward structures are not designed, implemented and communicated to support your firm’s business strategy and performance objectives, this results in suboptimal organizational performance and therefore impairment of top-line performance is a drag on profitability. Business units that are meant to cooperate will be more successful when there is alignment of measurement and reward. Bringing multiple compensation regimes into alignment across multiple lines of business is difficult, but critical to avoiding counterproductive activities and organizational friction. Aligned measurement and compensation makes execution smoother and ensures focus is on value creating activities. Not measuring (or inadequately measuring) the contribution of the compensation plans and programs hides profit drains. Measuring compensation program performance is typically challenged by a lack of adequate and available data or the absence of organizational accountability for compensation performance ROI. Compensation program changes are often needed to enhance alignment with corporate objectives, to address shifts in the market and to respond to changes in the business or team. Every day that passes between the decision to change the program and the implementation of the changes, represents leakage. It delays addressing sales and service focus issues, decreases rep/advisor satisfaction, persists operational burden and prevents all the oars pulling in one direction. Your compensation programs should be easily updated or replaced. Time-consuming requirements for custom programming or technical intervention is costly, and a warning sign that your compensation regime is not likely nimble enough to support your business. Don’t accept when the capabilities (or lack thereof) in your compensation system stand in the way of rewarding for the right customers, the right revenue, or the right performance standards. Allowing compensation plans to become too complex ultimately results in them becoming less effective. Focused and easily understood are the key design considerations for impactful compensation programs. Complexity creates friction with the participants and that impairs their execution – exactly what you don’t want. Complex plans make it difficult to ensure that everything is correct and paid out appropriately to the right participants. The errors that spring from complex plans are themselves so complex that they can frequently only be resolved by extended research and then implementing time-consuming and costly manual adjustments. The sheer number of plans in use is not, in and of itself, a problem. However, how these plans relate and how they are managed can be a problem and can cause considerable errors and excess compensation. Plans should be easily created, named, managed, audited, understood and retired, as necessary. Poor process and oversight in plan selection, deployment and management can give rise to the wrong compensation plan or the wrong rules being deployed which results in compensation errors, reporting inaccuracies and contributes to significant leakage that can compound over time. A clean and organized user interface, logical workflow processes and efficient oversight processes mitigate many costly errors. Ideally a full and completely granular view into plan set-up, input data and the calculations, is available to business leaders, managers and advisors. A lack of this visibility complicates the process of finding and reconciling errors and resolving disputes. This wastes valuable advisor, front office and operations time and erodes trust which impairs revenue and adds costs. Each discrete data type – especially product, service and asset/security types – must be associated to a classification that aligns with the compensation program. Frequently this means that several new products or securities may need to be assigned within the classification each day. While an automated process is desirable, many firms have workflows that include manual process that often are time consuming, have key-person risk or lack adequate validation controls. Inconsistencies in product assignments can potentially have a large impact on compensation over time and can be resource consuming to correct. For organizations with multiple lines of business, where products may be classified a number of times, and in a variety of different ways, these errors have a habit
The Impact of PureFacts’ PurePossibilities Program in 2022
Earlier this year, PureFacts was profiled by the Toronto Star, Canada’s largest daily newspaper by circulation. As part of the MaRS ecosystem, we were humbled to be featured as an innovator in technology. With over two decades in wealth-tech, we’re no stranger to media coverage. Our award-winning SaaS platform to help investment firms improve revenue management has been profiled before. But unlike other pieces that often focus on our technical innovation, this piece struck a chord because, in addition to showcasing our solution, it focused on our company values. It’s in our DNA In the article, CFO Gerard Daniels explains that PureFacts’ values and commitment to giving back aren’t lip service – they’re part of the company’s DNA. Many employees come from humble beginnings, including founder and CEO Robert Madej, and have a deep appreciation for how difficult growing wealth can be, especially in today’s economic climate. So as the company started to think about things like corporate citizenship, it made logical sense to develop a program designed to foster growth. Enter the PurePossibilities Program PurePossibilities was created to help provide a leg up to those who need it to ensure more people have financial well-being and the ability to live their best life. The program is comprised of three pillars – Essential Needs, Education, and Employment. Each pillar is designed to support the growth and success of both individuals and communities. The program is managed by a dedicated team of PureFacts employees and led by Mehrnaz Shokrollahi, an award-winning computer engineer, AI-influencer, and PureFacts’ AI Team Lead. “I was fortunate to be able to come to Canada with my family and start a better life, receive a formal education, and build a positive support network of friends and family. I’ve been able to excel in my career but, unfortunately, not everyone has this privilege. Leading the PurePossibilities program gives me the opportunity to give back to the community that’s given so much to me.” With a distributed workforce and global footprint, making a meaningful, coordinated, contribution towards each of these pillars might seem like a tough assignment. But when giving back is such a key ingredient to your company culture, and you have a team of people passionate about helping others, it becomes a natural part of doing business. Donating to ensure essential needs are met In 2022 PureFacts contributed to a variety of charities to help provide access to essential support and resources. This meant raising money for international causes as well as charities in our own backyards. In 2022 our charitable contributions included: While for a small team these contributions were meaningful, they barely scratch the surface of what these organizations, and others like them, need in order to deliver essential services and support to some of the most vulnerable people in our communities. We’ll continue to support organizations in need in 2023 and beyond as part of the PurePossibilities program. Lifting people up through access to higher education This year, PureFacts partnered with seven programs across five Canadian universities to help increase access to education. Our PureScholars program provided $152,000 worth of scholarships for more than 30 students over five years. Scholarship recipients included students at: Providing mentorship to help create a path for meaningful employment Rounding out the PurePossibilities program in 2022 was our involvement in mentorship. The PureFacts team mentored scholarship recipients and students from a variety of different organizations, including Wavemakers, to help them gain meaningful work experience and future-ready competencies. One student even became a PureFacts intern. In 2023 we look forward to expanding our mentorship program even further to help others develop and gain the skills needed for a successful future. Continuing our commitment in 2023 Last year was a good start for our PurePossiblities program, and a great example of what’s possible when an organization prioritizes people and community. It’s by no means the finish line. We’re looking forward to further extending our support and making even greater contributions in 2023. At PureFacts we have a vision of worldwide wealth, and ensuring people have their essential, educational, and employment needs met is one way we can help make that vision a reality.
PureFacts 2022: A look back
As we embark on a new year, it brings an opportunity for reflection. For investors, wealth advisors, and asset managers, this is a good occasion to evaluate what worked last year, what didn’t, and what could be done differently as you begin 2023. For us here at PureFacts, the beginning of the new year is a natural time to check in on the progress made against our goal to help our clients, and their investors, live their best lives possible through better wealth management. Here are just a few of the ways we’ve furthered that mission in 2022. Deepening our connection with the international wealth and asset management community With travel restrictions loosening, 2022 was the year the PureFacts team got back on the road to reconnect face-to-face with the wealth and asset management community. We were honoured to participate in The Summit for Asset Management (TSAM) in London, New York, and Toronto, as well as the TSAM ESG conference. In addition to these events, we also participated in the annual MMI Conference, the Aviso Wealth Elevate Conference and The World Business Forum. At each event we were inspired by the amazing work our clients are doing for their investors. We were also excited to see topics like, AI, ESG, and digital transformation dominate panel and speaker sessions, giving us the opportunity to share our insights and extensive experience in these areas with other innovators in wealth management. Giving back with the launch of PurePossibilities This past year was also one where we made corporate social responsibility (CSR) an even greater priority. Making a positive impact has been a cornerstone of how PureFacts operates from day one. Founder and CEO Robert Madej, President Rajini McRae, and many PureFacts employees come from modest means. They’ve seen, firsthand, what can be achieved when there is guidance in financial investments and education So in 2022 we defined and formalized our model for CSR with a comprehensive corporate citizenship program called PurePossibilities. Based on Abraham Maslow’s Hierarchy of needs, the program is designed to make a community and social impact in the following areas: essential needs, support in education, and meaningful employment. The program has grown quickly and is already starting to make a difference in communities – helping PureFacts recognize its vision of worldwide wealth. Prioritizing ESG Last year saw a rise in more conscientious investing. No longer prioritizing growth at all costs, investors, particularly young investors, see environmental, social, and governance (ESG) principles as more important factors when choosing where to invest their money. Companies ranking sustainable and ethical impacts are becoming far more attractive for clients and investors. In 2022 we shared our position regarding ESG and its impact on markets with speaking engagements at various conferences like TSAM, where we discussed the Future of Wealthtech and ESG. We also continued to make support for wealth and asset managers working with ESG products a priority with ongoing development of tools to help score and evaluate ESG assets. Being recognized as a trusted voice in WealthTech Beyond events, new programs, and staying on top of investment trends, 2022 was also a year that showcased PureFacts’ thought leadership, talent, and industry expertise. PureFacts was featured in several publications, including the : The company was also recognized for its leadership in wealth and financial technology. In addition to several awards, the team was humbled to be included on the 4th annual WealthTech100, the AIFintech100 and the global ESGFinTech100 lists. Looking Forward The groundwork set in 2022 positions PureFacts to deliver even more value to clients, communities, and the wealth and asset management industry in 2023. A heartfelt thank-you to all our clients, vendors, and partners who enable our growth and success year after year. In a few weeks, we’ll shed some more light on priorities for the upcoming year. In the meantime, subscribe below to receive more information about what’s to come, and other relevant tips, trends, and guidance to improve your fee billing, client onboarding, and wealth and asset.
PureFacts Launches PurePossibilities Community Program
PureFacts Financial Solutions has launched a comprehensive corporate citizenship program called PurePossibilities. The program was designed to help people in three main areas by providing essential needs, support in education, and meaningful employment. The heart and vision of PureFacts is to see a day where everyone has financial well-being and are given the opportunity to live their best life. CEO Robert Madej, President Rajini McRae and many PureFacts employees come from humble beginnings, and PurePossibilities endeavours to provide a leg up to many such people, in the hopes that someday we achieve Worldwide Wealth. “Many people in the PureFacts family have the advantage of a formal education, with all their basic needs covered, such as a place to live, access to food and clothing,” said Robert Madej, founder and CEO of PureFacts Financial Solutions. “By creating PurePossibilities, we are hoping to strengthen our communities and improve lives.” PurePossibilities is based on Abraham Maslow’s hierarchy of needs, in which essentials are layered from more concrete physiological needs (food, clothing and shelter) to safety (job security) and finally, self-actualization (pursuing goals). Furthermore, through this program, there is a hoped-for flywheel effect, in which individuals will give back to their communities once they have secured jobs and are meeting their own goals in life and career. Introduced by Jim Collins in his influential book Good To Great, the Flywheel Effect illustrates that “companies don’t become exceptional as a result of a single intervention or initiative, but rather from the accumulation of little wins that stack up over years.” In recent years, The Flywheel Effect has been used to help community revitalization efforts in Detroit. “We are trying to help individuals get a leg up in financial wellbeing so they too can create more opportunities for others,” said Rajini McRae, President of PureFacts Financial Solutions. “What differentiates this program is that our employees provide mentorship to help scholarship recipients land a job at PureFacts or in our network. Through employment they start the process of financial wellbeing and can help others as well.” PureFacts has divided up its own three pillars to focus into separate programs, each dedicated to supporting individuals and communities for long-term successes. The Essential Needs program helps provide the bare necessities people need to survive, such as food and clothing. To date, PureFacts and its 140 employees provided food security through The Daily Bread Food Bank, it raised $10,000 in support of Ukraine, and partnered with LIGA Foundations in Lisbon, a non-profit institution that trains people in situations of vulnerability. The PureScholars Education program helps lift individuals out of hardship through education. Scholarships to date are provided to multiple schools across Ontario, (the Rotman School of Management and the Faculty of Applied Science and Engineering, both at the University of Toronto; the University of Waterloo; and the University of Guelph.) The target student is one who has good grades, is involved in their community, and has financial needs. The program has provided $132,000 worth of scholarships for more than 30 students over five years. The Employment program helps enable self-actualization through meaningful employment. It does so by offering mentorship, networking opportunities and interview preparation assistance so recipients achieve financial wellbeing and can give back to others. PurePossibilities has already paired two PureFacts employees with mentored students in this program. “The pandemic has accelerated the need for PureFacts’ PurePossibilities program,” said McRae. “And while the program is growing faster than the team had anticipated, PureFacts is excited about the possibilities of making a difference in the community and towards its vision of Worldwide Wealth.” About PureFacts PureFacts is a global company serving over 100 clients with a combined one trillion in assets under management across Canada, the USA, and Europe. PureFacts’ wealth-tech solutions help some of the largest and most recognizable global wealth management firms increase productivity, reduce costs, and create an enhanced customer experience. Its solutions help firms retain their most valued clients, minimize time that advisers spend on fact finding to deliver high quality advice, and prevent costly mistakes through data anomaly detection.