If you’re considering making a move to a new opportunity or are currently recruiting financial advisors, it is important to be aware of the latest financial advisor compensation and pay trends. We’ll cover the latest trends to help inform your negotiations.
At Bridgemark Strategies, we are leading financial advisor recruiters and consultants serving Financial Advisors, RIAs, and Broker/Dealers nationwide. Contact us today to schedule a consultation.
Transition to Fee-Based Models
To say that financial advisor revenue is down in recent years is an oversimplification of the situation. Revenue per client has decreased, but that’s largely due to a transition to fee-based models. Commission income has been trending downward.
Some of this is due to fiduciary rules enacted by the DOL. Increased transparency has changed the way that advisors sell commissionable products. That has led to a movement towards more holistic wealth management services that necessitate a fee-based business model.
A Fidelity RIA benchmarking study conducted in 2018 shows the increase in fee-based advisory practices. In 2004, that number was 31%. When the study was published, nearly three years ago, it had already risen to 52%. Commission-only advisors make up only 3% of the market.
Advisors are Working Harder to Increase Annual Revenue
As the revenue per client declines, advisors have to work harder to increase their firm revenue. Automation has helped with this, particularly with financial planning and reporting tools, but prospecting for new clients is still the primary activity for wealth managers.
With fee-based models, number of clients can override the need to search for high net worth. This opens the door to firms who want to grow with smaller clients, but it increases the workload exponentially, necessitating the hiring of more advisors.
On the other side of the scale, prospecting for only ultra-high net worth clients is more of a gamble, because fees are compressed. Savvier investors know that, so they are price shopping, which keeps fees down. Businesses that acquire clients by being the lowest bidder rarely succeed.
Median Salaries are No Longer Competitive
The US median entry level salary for a registered rep is $41,160. That varies based on location, yet it’s still significantly lower than what a recent college graduate can get in other industries. Experienced reps can make over $200K, but it can take decades to get there.
RIAs, on the other hand, are pulling in significantly more, driving the industry exodus toward independence. According to a 2017 Fidelity Clearing and Custody Solutions study, 90% of the RIAs surveyed reported giving annual salary increases to their employees.
Base salaries in the independent space are also higher, averaging $50K to $60K in most states. Some firms in California are going as high as $80K for entry-level, with median salary ranges for lead advisors of $193,000. That’s far more competitive than the $41K in the wirehouse world.
Advisor Aging could Cause a Critical Loss of Services
For most firms, annual revenue dropped by 3 to 4 basis points between 2012 and 2016. Any advisor over fifty years old, which is more than half of the 310,000 total advisors in the United States, thought about retirement. Those who didn’t then are thinking about it now.
Only 12% of active financial advisors are under 35 years old. Of those, only one in sixteen are women. According to accounting firm Moss Adams, the industry as a whole is likely to face a shortfall of at least 200,000 advisors by the year 2022.
Gloom and doom or emerging opportunity? You could look at this either way. The trends are certainly alarming, but they’re opening up higher paying job opportunities from firms that are desperate for new talent. As those salaries come up, younger people will pay attention.
What’s Your Next Move?
At Bridgemark Strategies, we are leading financial advisor recruiters and consultants serving Financial Advisors, RIAs, and Broker/Dealers nationwide. Whether you’re changing broker-dealers, starting or joining an RIA, or looking for M&A opportunities, we can leverage our vast network and experience to help you discover and vet new firms so you can make the best choice for your needs. Learn more below, and contact us today to schedule a consultation.