How to Create KPI-Based Bonuses for Financial Advisors

If you’d like to incentivize your team, you may consider introducing key performance indicator-based bonuses as part of your firm’s compensation structure. This approach ties salary bonuses to specific key performance indicators (KPIs) and is designed to motivate your employees to actively participate in driving success for themselves and your firm. Learn how to create KPI-based bonuses for financial advisors in your organization, and when this compensation strategy makes sense.

Are you looking to expand your client prospecting efforts? Try SmartAsset AMP, a holistic client prospecting and marketing automation platform.

How to Create KPI-Based Bonuses for Financial Advisors in Your Firm

The formula for creating and implementing bonuses that are tied to performance is relatively straightforward. You’ll need to define which indicators you’ll use and establish performance thresholds for each one. Then prioritize them by importance, choose a tracking period, and calculate how payouts will work for each metric.

Let’s look at each step in more detail.

1. Define Your KPIs

You’ll need to select specific performance indicators that you’ll reward your team for achieving. How you define your KPIs is entirely up to you; but if you need inspiration, you could consider these examples:

Revenue growth: Revenue is an important measure of your firm’s financial health. If you use this KPI, you might measure revenue growth quarterly, biannually or annually. You could then establish separate metrics to track gross and net revenues.
Client acquisition: Acquiring new clients is one of the biggest challenges many advisors face. If you’re hoping to bulk up your book of business, it makes sense to incentivize your team to bring in new clients consistently.
Client retention: Bringing clients in is just one key to success; the other is retaining those clients for the long term. As such, you might choose to reward advisors who reach specific client-retention milestones or have a higher-than-average retention rate.
Client satisfaction: Asking clients to complete a satisfaction or experience survey is an effective way to gauge how satisfied they are with your business, and where you could improve. You may pay bonuses to team members who consistently score high marks on client reviews.
Compliance: Compliance is critical for financial advisors. So you might choose to measure the number of compliance incidents each member of your team experiences.

These are some of the most popular metrics that may be tied to bonus compensation for advisors. You could measure other indicators as well, such as profit margins or cost savings, or professional development.

When choosing any KPI to attach a bonus to, be as specific as possible whenever you can. For example, if you’re using client acquisition as a metric, you might establish a minimum number of clients you’d like each advisor on your team to acquire monthly, quarterly or annually.

2. Rank Each Indicator

Some KPIs may be more important to you than others. As you establish a KPI-based bonus structure, consider how much weight each indicator carries. That can help with the later step of assigning a payout structure for advisors who reach specific achievements.

For example, you might assign your weighting along these lines:

50% for KPIs that are revenue or client acquisition-specific
25% for indicators related to client retention and satisfaction
15% for cost savings and increased efficiency
10% for compliance

Your weighting might look different, and that’s perfectly fine. Different bonus structures may call for different percentage allocations.

3. Track Your KPIs

An advisor working on creating KPI-based bonuses for financial advisors.

Once you’ve established your KPIs for bonuses, you’ll need a consistent method for tracking them. You’ll also need to select a tracking period. Again, this may be monthly, quarterly, biannually or annually, depending on which metrics you’re using.

Your customer relationship management (CRM) platform may include built-in tools that allow you to monitor your team’s progress. Or you may use a stand-alone KPI tracking software. Regardless of which tracking tool you use, your team should be able to view how close or far away they are from achieving a key milestone that could trigger a larger bonus.

4. Calculate Bonus Payouts

You’ll need to decide how much of a bonus to offer your advisors, based on the KPIs you’re tracking. You’ll also need to do some math to figure out how much of a bonus each employee earns per tracking period.

A typical KPI bonus formula requires you to know the following:

The employee’s base salary, in dollars
The target achievement rate, per KPI, expressed as a percentage
The employee’s performance or achievement rate, expressed as a percentage
The percentage of the employee’s salary you will offer as a bonus

For example, say you’re using three KPIs that are weighted at 50%, 30% and 20%. They have a target achievement rate of 95%, 90% and 80%, respectively. To find the actual bonus amount, you would need to know the employee’s achievement rate for each KPI.

Let’s assume the following:

KPI 1 (50% weighting/120% employee achievement rate)
KPI 2 (30% weighting/90% employee achievement rate)
KPI 3 (20% weighting/100% employee achievement rate)

To find the weighted scores, you would change each figure to a decimal, then multiply them together. So, your weighted numbers would look like this:

KPI 1: 0.50 x 1.20 = 0.60
KPI 2: 0.30 x 0.90 = 0.27
KPI 3: 0.20 x 1.00= 0.20

Now, you add those three numbers together:

0.60 + 0.27 +0.20 = 1.07

The 1.07 number represents the employee’s overall achievement score. Now, say the overall bonus is worth 20% of the employee’s base salary of $100,000. Here’s the last calculation:

1.07 x 0.20 = 0.214 x $100,000 = $21,400

Given the amount of math that’s required, it makes sense to use a KPI calculator tool to determine bonus amounts. The more KPIs you plan to use and the more employees you have, the more complicated the calculations can become. A KPI tool can help minimize any potential errors.

Client Acquisition Simplified: For RIAs

Ideal for RIAs looking to scale.
Validated referrals to help build your pipeline efficiently.
Save time + optimize your close rate with high-touch, pre-built campaigns.

CFP®, CEO

Joe Anderson

Pure Financial Advisors

We have seen a remarkable return on investment and comparatively low client acquisition costs even as we’ve multiplied our spend over the years.

Pure Financial Advisors reports $1B in new AUM from SmartAsset investor referrals.

Should Advisors Use KPI-Based Bonuses?

Offering bonuses based on key performance indicators may be better suited to some advisory firms than others. Research is mixed on how effective performance-based bonuses are in driving revenue and growth, but the benefits may include:

Increased job satisfaction among employees
Greater retention rates and lower turnover
Increased engagement
Better productivity and efficiency
More satisfied clients
Revenue and AUM growth

A KPI-based bonus structure could also be a useful tool for recruiting new talent to your firm. A generous bonus program that challenges advisors while rewarding them accordingly for their efforts can be an excellent selling point.

Build a Better RIA

Drive growth with automation, not headcount using the all-in-one advisor marketing platform.

Bottom Line

KPI-based bonuses may work well for some advisory firms, but for others, not so much. Considering the different personalities of your team members and the way they work may shed some light on whether a KPI-based bonus structure could work at your firm.

Tips for Growing Your Advisory Business

SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
Developing a transparent payout grid can help ensure that everyone on your team is on the same page regarding base salary, bonuses, commissions and other forms of pay. Reviewing your payout grid periodically can ensure that you’re paying competitive salaries that mirror industry standards. That could make your employees less likely to look elsewhere for a more lucrative role.