Sharp Year-End Decrease In Bonuses Expected for Financial Sector

In the financial services sector, base salaries increase 4% to 5% for the second straight year in 2022, while bonuses are set to fall amid volatile markets, according to Johnson Associates.

Compensation consultant Johnson Associates projects a sharp year-end decrease in incentive pay across the financial services sector.

Traditional asset management incentive compensation is down significantly following the drop in both equities and bonds in 2022. Relative to 2021, the firm projects that bonuses will fall approximately 20% to 25% this year.

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Pressure on asset management segment is highlighted by a decline in assets under management due to the market sell-off, outflows in active equity strategies, a remarkable level of correlation between the bond and equity markets—both of which are down significantly in the wake of interest rate hikes—and the build-out of alternative and technology platforms.

In the alternative investment sector, private equity and hedge fund incentive compensation fell, as outflows pressured hedge funds, large private equity funds moved down modestly and private equity and venture capital fundraising and dealmaking slowed substantially from a rapid 2021 pace, the firm reports.

Bonuses are expected to drop 15% to 20% in hedge funds, the firm wrote, though this may not be the case for all hedge funds. The outperformance of macro-strategy hedge funds in 2022 led Johnson Associates to predict incentive compensation for macro-strategies will be up 10% to 20% from 2021.

In investment and commercial banking, incentives are down as profits fell from 2021 levels. Drastic declines in valuations have caused a pause in new initial public offerings and caused credit loss provisions to increase. Into 2023, hiring slowdowns and workforce reductions loom, as geopolitical, inflationary, and recessionary risks persist.

Firm management and corporate staff will see their bonuses drop 20% to 30% from 2021, according to the report, due to mixed performances across business lines and lower profits.

In 2022, there is a lone bright spot for incentive compensation: sales and trading, specifically fixed income. Members of this segment can expect to be up 15% to 20% over last year, as market volatility led to higher client activity. 

The biggest change year-over-year in incentive compensation is for underwriters in investment banking, firm management and staff positions, and those in asset management.

“Most Wall Street professionals will be quite disappointed and surprised when they receive their year-end bonuses,” said Alan Johnson, managing director of Johnson Associates, in a statement.

Across financial services, base salaries increased 4% to 5% for the second straight year in 2022 .

Johnson Associates cautioned that an uncertain future environment looms, and the report states, “year-end 2022 compensation decisions should consider two-year timeframes, many firms are reducing hiring plans and some [will conduct] layoffs as business results down and cost cutting pressures mount.”

Expert Panel: Today’s Retirement Plan Advisories Require Specialization

An evolving small business market, increased regulation, and shifts in client needs all lead to more specialized retirement plan advisement, according to a panel held by American College.



As financial planning matures, retirement plan advisers will benefit by either working with a team of specialists, or learning about areas their clients’ areas of concern, according to a panel held Thursday by the American College of Financial Services.

In the current retirement landscape, a small business client may look to their adviser for areas ranging from wealth management to insurance needs to succession planning, said Heather Welsh, a comprehensive financial planner and wealth planning department leader with Sequoia Financial Group. An adviser isn’t expected to be an expert on everything, so should look to partner with those who have the knowledge she does not.

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“You have to subjugate your ego,” Welsh said on the webinar. “When you sub-specialize it’s not your client, or my client. It’s about getting the best team together to meet the needs of the client.”

Client requests for more than just retirement planning has been a theme since the pandemic and Great Resignation have led to changes in the workplace. Meanwhile, as much as 74% of small businesses still do not offer a retirement plan for employees, according to a survey by ShareBuilder 401k, leaving plenty of room for adviser engagement.

Welsh said it’s important that when a client has a question on something like retirement income, that they can get on the phone with the “right person.” That means either an adviser has to be skilled in a certain area, or that there’s a team member to turn to for help.

“It’s a consolidation of expertise,” she says. “Not everyone has both the client-facing skills and also a deep knowledge for all the range of different client types.”

New or proposed legislation, which has ramped up in recent years, has also created the need for further specialization, according to the panelists. That includes areas like the tax code for small businesses, said Michel Finke, professor of wealth management at American College.

“It’s an evolution that advisers need to adjust to, and it’s very complicated,” he said.

Finke also noted that when advisers can provide specialization in areas ranging from investing to college saving to estate planning, it can lead to stickier, longer-lasting clients.

Terry Parham, chief financial officer and financial planner with Innovative Wealth Building, said many of his clients run their own businesses while acting part time, or are working in multiple jobs. That has required the Los Angeles-based adviser to gain educational expertise in a variety of areas, with more learning to come, he said.

“On the retirement income side everyone is going to ask about Social Security, they’re going to ask about Medicare,” he said. “But many advisers may not know about those issues. You have to get smart on those basic things.”

When advisers are working with a small business, they need to be aware of how their recommendations will impact the company’s cost of doing business in the long run, said Scott Winslow, a managing partner with Nabell Winslow Investments & Wealth Management.

“You give yourself a lot of credibility when you explain what you’re doing and how it’s not going to effect the cost basis of a business,” Winslow said.

Winslow, who has a boutique advisory firm, says he works with partners to provide holistic retirement planning to clients.

“We get together the best team possible so the client can look around the table and say ‘hey, they’ve got this covered,’” Winslow said.

 

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