A rewarding recruitment tool: A ‘finder's fee’ for advisors

Advisor Files - Winter 2012 | By Gina Lauer

MOST BANK INVESTMENT program advisors are well-versed in the practice of giving and getting client referrals. But some are reaping the financial benefits of another type of referral system: referring advisors to their financial institution or third-party marketing firm.

LeAnn McCool, PrimeVest

A flat-fee bonus

In the case of a financial advisor referring another advisor, the recruiting advisor receives a flat'fee bonus. McCool declined to provide the amount of the fee, but says, “It is substantial. It is making a difference.”

‘When I got to HomeStreet, he [Koh] was the first guy that I thought of. He's got great ethics, integrity. He's all about the clients,’ Boehm says.

Shane Boehm, a financial advisor with PrimeVest at HomeStreet Bank in Seattle is a recent referral rewards recipient. In mid-July, he joined HomeStreet to help a former manager build the investment program. As he worked on expanding the rep force, he reached out to Jae Koh, an advisor he'd met through a wholesaler and with whom he had established a friendship.

“When I got to HomeStreet, he was the first guy that I thought of,” Boehm says. “He's got great ethics, integrity. He's all about the clients,” Boehm says.

Koh is now part of the team of six full-time advisors at HomeStreet. Koh's assistant from his previous employer was also hired.

Primevest's program offers monetary incentives to advisors who refer other advisors. “It1s really about friends referring friends.” — LeAnn McCool, PrimeVest

What did Boehm say that caught Koh's interest? “The fact that I can be part of a building process,” Koh says. His existing friendship with Boehm was a factor, too. “If it was anybody else, I might have been a little more hesitant or skeptical,” Koh says. The fact that the referral came from Boehm “made it a little bit easier for me,” he adds.

Koh also considers Boehm a mentor. “I realized that there's still a lot I can learn, and I felt like Shane was more than qualified as a person for me to learn from personally, professionally.”

Boehm says participating in the referral program wasn't solely about the financial reward. There was the incentive of building a quality investment program, and he was also a fan of PrimeVest. But the reward does “bring a sense of urgency to those gaps that need to be filled.”

“Knowing that there's that incentive there does give you motivation to take some time away from trying to build your book or trying to get the next appointment to actually calling the people you respect or that you think that would be a good fit and introducing them to the program.” Boehm says.

Being able to choose your program partners has its benefits, too. That personal connection makes for a more cohesive team. “All four of us are within one degree of separation,“ Boehm notes. [Two more advisors have been added to the team since this interview.]

It's ‘short-ighted’ to pay an advisor [only] a $1,000 referral fee when professional recruiters might receive $15,000 for finding a new advisor, says recruiter Kane.

Koh, too, says he would recommend PrimeVest to other advisors, financial reward or not. But the financial incentive “kind of makes it a little more interesting, if you will.”

Six new advisors

How much interest has the referral program generated? When McCool spoke to us in December, the program had brought in six financial professionals. “That's totaling nearly $2 million in GDC. And each advisor has been over $250,000 or more in GDC.”

One financial institution was added as a client as a result of the program. “And I think that one was over $3 million in GDC,” McCool says.

The referral process is fairly simple: Give PrimeVest the name of the prospective advisor and set up an introductory meeting. The third-party marketing firm (TMP) handles the rest. Does the advisor have to stay a certain length of time with the firm? Again, PrimeVest executives did not want to go into program specifics.

What was the impetus behind the referral rewards? “We wanted to make sure as we looked at our rep recruitment strategies, we weren't leaving any opportunities uncovered,” McCool says. One of the goals, too, was to make the referral process “easy.”

In addition to the rewards program, PrimeVest launched a career opportunities portal on its website that allows financial institutions to post openings for investment professionals. Advisors can also check for job openings by clicking on various states on a U.S. map that appears on the website under a “career opportunities” heading.

Other PrimeVest recruiting tools include customized prospect lists from national databases, access to regional and national recruiting firms, and an online recruitment resource center that provides candidate sourcing, interview techniques, candidate selection processes and recruiting trends. The firm also has an in-house dedicated recruiting manager.

Tom Kane, managing director of KaneCarlton, LLC, a consulting, coaching and advisory firm in the wealth management industry, says the practice of offering monetary rewards for referring an advisor to a firm is not new, particularly in the non-bank channels.

More prevalent

“But it's growing more prevalent in the banking world, simply because a lot of those wirehouse firms have been acquired by banks,” Kane says.

Other factors have impacted the job market as well: The aging population of advisors; a loss of advisors to the economic tsunami; the demand for experienced advisors; and waning funds for in-house advisor training programs. The result is that investment programs and TPMs “are looking for as many creative methods as they possibly can,” Kane says.

Methods and amounts of reward compensation vary, particularly from large institutions to community banks or credit unions. Larger institutions may pay a percentage of trailing or forward commissions for a certain length of time. Others, typically at the community bank level, may pay a nominal flat fee. (Previous interviews with banks and bank channel recruiters found that advisors in some cases were paid $500 or $1,000 for referring another advisor.)

Flat fee is more typical

An industry recruiter says finder fees for reps are common, estimating as many as 75 percent to 80 percent of programs offer some type of incentive. The bonus is typically a flat fee so as not to appear like a commission-sharing arrangement. The bonus could be as little as $50 and as high as $5,000 or above. Smaller community banks generally pay less.

“I think the [flat fee] is more prevalent, but I don't think it's as productive,” Kane says. Banks need to understand the costs associated with recruiting an advisor and how much a quality advisor can contribute year after year, he adds.

Kane, who has worked with institutions in the area of advisor recruitment, suggests that offering a rep recruiter a percentage of the new advisor's forward 12-month trail, for example, might provide greater incentive.

It's “short-sighted” to pay an advisor a $1,000 referral fee when professional recruiters might receive $15,000 for finding a new advisor, he explains.

In 2008, Kane wrote a white paper on compensation and used nine banks as case studies. At that time, only one had a formal recruiting component included in the actual compensation plan. That doesn't mean, however, that the others did not have a referral program or other incentives for recruiting; they simply may not have added them to the compensation plan for advisors.

Referrals should be added to the compensation plan, Kane says, because it is another way advisors can earn “meaningful income.”

Kane also encourages bank or investment program management to look at how the competition (brokerage houses, regional firms) recruits candidates. “What we try to get our clients to realize is that the competition is no longer just the bank across the street.”

Recruiting methods and formulas will continue to evolve, particularly as social media gains a greater presence. And finding the right rep will continue to be a high priority—because, as Kane says, “The people are everything.”

Gina Lauer is a contributing editor of Bank Insurance & Securities Marketing. She can be reached at glauer@bisanet.org.