Adviser salaries have been stagnant for the past two years, but bonuses are up sharply, reflecting a willingness by employers to reward performance while at the same time keeping a lid on overall compensation.
Adviser salaries last year were about 3% to 5% above where they were in 2012, according to
the 2015 InvestmentNews Adviser Compensation and Staffing Study, which was sponsored by Pershing LLC. That's about equal to the total cost-of-living adjustments made by the government to Social Security benefits over that time.
The median lead adviser salary in 2014 was $115,000, up from $110,000 two years earlier, the report found. Practicing partner salaries also were up slightly, to $180,000 last year from $175,000 in 2012.
At the same time, lead adviser bonuses jumped 28% from 2012 to last year ($25,000), and bonuses for practicing partners rose 23% to $60,000, the compensation analysis found.
PRUDENT AND BENEFICIAL
“This trend of keeping salaries steady and growing bonuses is very prudent and beneficial for firms,” said Brandon Odell, a partner and director of business management for The Ensemble Practice, which helped conduct the survey. It allows firms to compensate successful advisers without burdening themselves with exorbitant salaries that have to be paid out regardless of performance. When salaries and bonuses are added together, the median lead adviser total compensation last year was $143,000, up 8% from 2012. Total compensation for practicing partners was $286,000, up 19%.
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Advisory firm Sullivan Bruyette Speros & Blayney offers adviser candidates “reasonable” compensation based on what other firms in its market are paying, said Mark Johannessen, managing director at the firm.
In addition, employees are told what they will need to accomplish to earn additional compensation, thus creating an incentive to perform. His firm has grown from a team of seven people 25 years ago to 43 today.
Experts say incentive compensation is a great way to align individual and firm goals.
“Incentive compensation is how you get advisers to do what you want them to do,” said Vanessa Oligino, TD Ameritrade Institutional's director of business performance solutions.
ADVISER SHORTAGE
Ironically, the leveling off in salaries is happening at the same time experts are predicting a talent shortage in the advisory industry.
The number of financial advisers in the U.S. overall has declined every year since 2008, according to research firm Cerulli Associates Inc. Looking forward, the numbers are no more promising. More than a third of U.S. financial advisers are expected to retire in the next 10 years — creating demand for more than 200,000 new advisers.
Based on her work helping advisers manage their businesses, Ms. Oligino said firms are struggling to find talented advisers to hire. In addition to incentive compensation, many are offering internships and reaching out to college financial planning programs to find new prospects.
“There's definitely a talent shortage,” she said. “People just aren't choosing these programs.”
(Career insights: The adviser designations that yield the best pay)
Angie Herbers, co-founder and chief executive of Kaleido, said the advice industry has evolved to the point where firms have to offer incentive compensation that goes beyond standard salaries based on the size and geographic location of a company. Firms that are attracting the best talent offer incentive compensation that rewards those who contribute to the success of the organization.
Mark Elzweig, an executive recruiter, agreed. Instead of higher salaries, advisory firms are more apt to reward stellar performers with high bonuses, he said.
“Firms are hungry to hire,” Mr. Elzweig said. “But only advisers who bring in assets and control the revenue stream enjoy an open-ended compensation schedule.”
BUSINESS MODEL
The total compensation advisers earned last year varied depending on the business model they worked under.
Data from the
2015 InvestmentNews report show that lead advisers working in registered investment advisory firms earned the highest total compensation last year, a median $158,000, compared to $139,000 for lead advisers at independent broker-dealers and $117,500 for those at hybrid firms. The average years in the business for these professionals was 16 years at RIAs, and 15 years for advisers at the IBD and hybrid firms.
(More on compensation: The highest paying jobs at advisory firms)
Practicing partner compensation at RIAs and hybrid firms in 2014 was the same, a median of $300,000, while practicing partners at independent broker-dealers received a median of $250,000, the report found. The average years in business for these professionals was 22 years at RIAs and hybrids and 20 years at IBDs.
The 2015 survey shows it still pays to be an owner. The average income per owner increased 24% to $527,000 last year, from $424,000 in 2012, the compensation report showed.
Ms. Herbers also said she's seeing many talented advisers seeking firms with a holistic planning model and that they are willing to take lower salaries to end up at such firms.
“It's an amazing thing to watch,” she said. “We have more educated and skilled advisers coming into firms saying it's OK if they get paid less, that they have a certain standard for the way they want to work with clients.”
