Far from simply being a recruiting and retention tool, financial advisor compensation plans are turning into important growth and valuation engines, according to succession planning experts.

Registered investment advisory firms or other advisory practices must create career paths and pay plans that evolve quickly enough to keep up with industry competition, advisorcareer advancement, geographic factors and the company’s long-term goals, according to a webinar last month on compensation trends led by Julia Sexton, the director of strategic organizational planning at consulting firm Succession Resource Group, and Ryan Grau, the company’s director of valuations. They presented the first of what will become an annual compensation study based on data from the RIAs that use the firm’s services. And the central takeaway revolved around the divergent impact among firms that have taken proactive steps, and those that haven’t.

“Today isn’t just about benchmarking numbers,” Sexton said. “It’s about aligning compensation with role, clarity, behaviors, growth objectives and long-term enterprise value, because when compensation is designed intentionally, it becomes one of the most powerful strategic levers that you have in your firm and is so critical to so many transaction and business growth initiatives, succession planning, viability and just the overall cultural and financial health of your business.”

On the other hand, Grau jumped in to add, failing to build an effective compensation strategy is “one of the quickest ways to derail value.”