Getting a handle on broker compensation

addressing the issues in brokerage compensation

Barry Weinstein, of Castine Consulting, has extensive experience as a financial services and technology solutions professional. 

One of the key areas of under-automation within the brokerage community is that of trader compensation and while I speak to traders a bit here, this applies to any rep, advisor or individual and teams who are paid commissions or payouts under a complex compensation plan with specific rules that can change for any time period for any reason. While pretty much every facet of a trader’s work life revolves around their computer systems, immediate answers, and trouble-free trading platforms, getting answers to a question of “how much did I make” is a lot harder to figure out.

This is an issue for both reps / teams and the firms they work for: errors and omissions can be very costly and can have a negative impact on morale. A small error is an annoyance. A big error costs people their jobs or convinces traders that management doesn’t pay enough attention to them and they might do better working somewhere else. It gives the appearance that what is most important to them is not important to management.

This is not to say that there are no solutions for the problem. There are. The issue is that the majority of those brokers surveyed relied solely on spreadsheets to figure out how much their traders should be paid. A spreadsheet is not the platform for something as critical as compensation.

Let’s say, for the sake of argument, that a spreadsheet is mathematically 100% accurate and will always be so. That takes out the internal “errors” part of the Operational Risk equation. What it doesn’t do is address the external errors or the “omissions” part. For example, there’s no way to ensure that all of the trades that a trader needs to be compensated for are listed. Traders can’t login to a spreadsheet to see where they stand. Rules as to how commissions are split up could be out-of-date, or entirely missing. If a trader joins a team or moves from a team to be compensated on their own, does the spreadsheet reflect that?

What’s needed is a system that is available 24/7, has a direct connection to one’s trading feeds, is web- or cloud-based, and lets each different type of audience (administrators, team heads, and traders) see exactly where they stand as soon as each new trade is loaded into the system. Can it be done?

This is a topic we’re tackling. We think it can be done.