U.S. advisors’ compensation levels will start to increase, says the 2012 U.S. Asset Management Compensation Report.
Though salaries were stagnant from 2010 to 2011, the report says the financial industry—like the U.S. economy—is slowly regaining strength.
It adds execs should consider recent industry trends as they evaluate their current compensation levels and opportunities.
The first trend discussed is how fixed-income is surpassing equities. The report says, “Although this trend might reverse if a sustained economic recovery takes hold next year, markets have [already] been awaiting such a turnaround for the past two years.”
Another key trend is how independent managers enjoy more pay flexibility; bank-owned asset managers face more stringent compliance standards, and this has created a divide in compensation practices within the industry.
Regarding bank versus independent advisors, the report says, “Among the rules affecting employee compensation at bank-owned investment management firms are mandates for high rates of deferred compensation and clawbacks.”
It adds the “performance troubles of some major banks and the ongoing public scrutiny of large financial service firms have decreased the appeal of banks as employers for buy-side professionals.”
Third, it says hedge funds offer pay potential, with many hedge-fund professionals earning nearly twice as much as traditional management firms. But be wary, as their larger paycheques come with bigger risks.
Additionally, the paper discusses hot topics such as the present benchmarks on 2012 compensation and the impact of new financial service regulations on asset management compensation.
Most recently, it finds firms are adopting “programs with scalable awards based on performance as defined by metrics such as net income, returns on equity and shareholder returns.” These programs help link compensation awards to strategic goals and financial performance.
The report concludes the industry is moving towards a new set of best compensation practices. It says, “They’re being shaped by managers adapting to a changing business environment and to the demands of regulators [and] investors who are calling for compensation practices” that prioritize clients’ best interests and discourage excessive risk taking.
Read more on how compensation models are changing by accessing the report.