Average pay in the financial advisor industry overall is OK, but hardly mind-blowing. As IBD has reported,the average annual salary of personal financial advisors hit $118,050 in 2015, according to careertrends.com. That topped 90% of all occupations' salaries.
But look what happens to financial advisors' compensation figures when you check out paychecks beyond America's multitude ofsmall mom-and-pop financial advisors and beyond young newcomers to the field, whether they toil on Wall Street or Main Street. Top yearly base compensation at regional broker-dealers and wirehouses ranges from $140,000 for financial advisors at UBS whose 2017 production will be $400,000, to $1,105,000 for Raymond James & Associates financial advisors whose production this year hits $2 million, according to a new survey by the publication On Wall Street.
On Wall Street's data include pay for financial advisors with 10 years of service.The firm combines cash pay and deferred compensation, and it excludes any bonus financial advisors may earn or performance penalty they may incur. It also excludes any company match to 401(k) or other profit-sharing plans.
Further, it assumes that a financial advisor's production— products and services sold to clients— is in the form of individual stocks, bonds, mutual funds and fee-based services such as wrap accounts and managed accounts, with each of those accounting for 25% of the advisor's business. What happens if one of those is less than 25%? It's not counted?
The On Wall Street results show compensation ranging from 35% of production for a $400,000 producer at UBS to 55% of production for a $2 million producer at Raymond James.
In between, On Wall Street's survey details compensation for $600,000 producers and $1 million producers.
"I think some firms would pay a higher percentage if you were, say, a $5 million producer," On Wall Street senior editor Andrew Welsch told IBD.
Cash Is King
In the survey, the cash portion— called cash grid— ranges from a low of 66.6% of total compensation for Edward Jones to 100% of total compensation for several firms at several levels of production. In most cases, cash accounted for about 83% to 98% of total compensation.
The data divides pay into cash and deferred portions. "Cash is what you get paid upfront," Welsch said. "Some more cynical people might call the deferred compensation golden handcuffs because you must stay at the firm to get that at some time in the future."
Welsch added: "Some wirehouses increase the deferred part of the equation. They say it helps them balance their (profit-and-loss statement) and offset costs. Their argument is that it allows them to pay advisors more in theory, because more of the pay is deferred. A cynical advisor would say they are just taking that from the cash component. You've got to wait for the deferred part to vest."
Troubling Trend
The compensation data shows a trend over the years regarding break points where advisors' compensation rises based on production. "Pay is staying roughly the same, but the thresholds (for break points) keep moving back," he said. "The firms are moving the goal posts. If you want to earn the same amount as in previous years, you have to produce more. You must do more business to earn the same take-home pay."
For financial firms, moving those break points back can become a game of chicken with financial advisors. "Changes in the break points are one of the key reasons why advisors leave wirehouses and go to independent RIAs," Welsch said. "They know exactly what they'll make there (at the RIA). At the wirehouses, there's always uncertainty about what the next year's (break points) will be."
Financial firms must carefully weigh how quickly to move those break points back."The changes are always small," Welsch said. "They don't want to trigger a mass exodus of advisors."
Survey respondents included wirehouses— or full-service financial firms— Wells Fargo (WFC), UBS (UBS), Bank of America's[ticker symb=BAC] Merrill Lynch and Morgan Stanley (MS).
Other regionals were RBC Wealth Management, Hilliard Lyons, Stifel, Janney Montgomery Scott, Wunderlich and Edward Jones.
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