How much time does your advisor team waste on shadow accounting? In the world of incentive compensation, shadow accounting is the process in which a salesperson tracks their production separately, creating and maintaining a parallel record so that they can double-check their incentive compensation payout.

 

Shadow Accounting Drains Time and Resources

Shadow accounting impacts the productivity of both your advisor team and your compensation manager. For the advisor, instead of focusing on their clients and driving sales, time is spent tracking their numbers. Lost time selling means lost revenue.

For the compensation manager, they have to respond to advisors inquiries regarding discrepancies (real or perceived) and address commission disputes. Commission disputes are challenging to research and resolve. Putting out these fires will have a negative impact on a broker-dealers bottom line profit.

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What Causes Shadow Accounting?

1. Poor Visibility
Advisors need to have visibility into their incentive compensation. They need to see their production numbers and how they’re tracking to quota. Without this visibility, advisors will resort to monitoring their sales stats independently.

2. Inaccurate Payouts
Inaccurate payouts are likely the main culprit behind shadow accounting. Miscalculations and inaccurate payout demotivates advisors and causes them to lose faith in the efficacy and accuracy of your compensation processes.

3. Lack of Confidence
A lack of confidence is the culmination of the issues described above–poor visibility and inaccurate payouts. Essentially there is a lack of confidence in the current compensation system, whether it be the processes, staff, or technology.

 

How to Eliminate Shadow Accounting

Many investment firms still employ manual methods in their compensation administering processes. A surprisingly high number of firms use spreadsheets as the primary compensation tool According to CSO Insights 51.6% of businesses use spreadsheets to calculate and manage commissions; an additional 10.8% use manual tools to calculate commission payments. In other words, 62.4% of businesses use spreadsheets or manual means to run their incentive compensation program. Investing in an incentive compensation management solution will help investment firms manage every aspect of their incentive compensation with increased accuracy and efficiency.

1. Increase Transparency
Incentive compensation management tools will bring transparency to the compensation process. The advisor can view their sales production in real-time at any time. Instead of waiting for periodic updates delivered by email advisors will see current sales figures and view pending trades. This visibility eliminates surprises and reduces the number of commission disputes.

2. Improve Payment Accuracy
Disputing errors will be caught sooner. Automating compensation management significantly reduces the potential for human error. The compensation system must not only be accurate but must contain mechanisms to allow the back-office to spot and correct any mistakes that might occur.

3. Build Trust
Automating compensation management will significantly reduce the amount of time and resources required in processing commissions. Timely and accurate payments help build trust with your advisor team.

 

Boost Productivity and Confidence

Investing in incentive compensation management technology boosts the productivity of both your advisors and your back-office. Advisors can now focus on their clients and selling activities instead of wasting precious time doing shadow accounting. More time spent on selling will drive revenue.
Your back-office productivity and efficiency increases. A reduction in commission disputes means your team can focus on more critical priorities.

Equally important is the increased trust and confidence that your advisors have in the accounting staff, leadership, and the incentive compensation program. This, in turn, will help motivate your advisors, boost productivity, and foster a positive work culture of engaged employees

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