Riding on the coattails of a near 30 percent rise in the S&P 500 last year, financial advisors saw their compensation grow by 16.5 percent in 2013 to an average $240,000, according to REP.’s annual advisor compensation survey. Almost eight out of ten advisors said their total compensation was up from the previous year; 67 percent said it was up by more than 10 percent.
And 2014 may be just as rosy, with advisors expecting overall pay to grow, on average, 17 percent. But the prosperous results belie the reality that despite the overall success, advisors feel like it’s actually getting harder to keep up.
“Individually if I were an advisor looking out I’d say, ‘Boy, my competitors and my peers are growing at almost 20 percent a year; I really got to keep up with that; I cannot afford to fall behind,’” says Philip Palaveev, CEO and owners of The Ensemble Practice. “If you fall behind when the markets are good, what happens when they’re bad?”
Advisors’ flush times are also threatened by so-called “robo-advisors,” online platforms that offer low-cost financial advice, portfolio strategies and performance metrics, such as Betterment, Wealthfront and Personal Capital. Such startups charge 25 to 75 basis points for the annual cost of investment advice, compared to 1 to 2 percent at full-service brokerage firms, according to a recent analysis by Corporate Insight.
“It’s coming—maybe not next year or the year after—but in three to five years, there will definitely be a downward pressure on fees because of the online players,” says Tim Welsh, president and founder of Nexus Strategy in Larkspur, Calif.
Riding the Bull
But for now, most are riding high. Advisors reported an average 18.5 percent bump in their assets under management, with steeper increases of over 20 percent in the regional, pure RIA and insurance channels.
Excluding market performance, 80 percent of advisors said clients have invested more new dollars than they have withdrawn in the past year, versus only 4.7 percent who said clients withdrew more than they added, according to the REP. report. The net increase in new money was even more prevalent among the regional and independent b/d firms, at 88 percent and 83 percent of advisors, respectively. Seventy-six percent of advisors said the number of clients they serve has increased in the last 12 months.
“Generally speaking, when the markets are positive, it’s easier to convince existing clients to invest more money, so invested assets are growing,” Palaveev says. “And it’s also perhaps easier to attract new clients who never had an advisor before.”
“The industry’s really not adding a lot of net advisors, so there’s still plenty of business for the set number of advisors,” says Andy Tasnady, managing partner of Tasnady & Associates, a Port Washington, N.Y.-based firm that designs compensation plans for brokerage firms. “As people retire, that business has to go somewhere. The people who stay should get a boost from some of the client rollovers.”
Payouts, which advisors chose as the most important change to their compensation plans this year, were also up. The average payout per advisor grew from about 48 percent last year to 52 percent this year, with IBD advisors having the highest payout at 78 percent and bank brokerage advisors having the lowest at 35 percent.
Advisors are also more productive, with average gross production rising from $587,000 in last year’s survey to about $666,000 this year. Bank advisors had the highest production at $920,000. The wirehouses typically had the highest revenue per advisor, but pure RIA firms follow bank advisors with about $916,000 in annual revenue, compared to the wirehouse brokers at $716,000.
“That continues to speak to the rise of the RIA channel,” Palaveev says.
How They Feel About It
Most advisors are pleased with how much they make. 74 percent believe they are either above or level with the industry standard. Advisors at the regionals and IBDs were the happiest, with 45 percent and 42 percent of those brokers, respectively, reporting above standard compensation.
“To some degree perhaps the dust has settled,” Palaveev says. “Whoever was unhappy moved, and whoever was going to switch, switched. And perhaps because last year was very successful, you can see very high rates of growth in the survey.”
That said, about 40 percent of advisors at RIAs with no b/d affiliation say their compensation is below the industry standard. But nearly the same number (38 percent) of advisors at these firms are neither an owner nor a principal of the firm.
“I believe owners are happy with their income, but perhaps employees are not,” Palaveev says.
Still, a quarter of advisors across channels believe they’re underpaid relative to their peers, according to the survey, leaving the door open for a possible move.
“If you think, who is a broker/dealer going to recruit?” Palaveev says. “The answer is probably going to be someone who doesn’t feel that their business model is well-supported, someone who’s unhappy with their compensation, someone who doesn’t feel they receive what they need for their business.”