When Jeffery Camarda Left His Job as an insurance-based advisor at John Hancock in 1988 to launch Camarda Financial Advisory Inc., a fee-only RIA, his income vanished. “I took a loss for the first time in my life,” Camarda says. Not only did Camarda have to rebuild his book from scratch; he also realized that making money in the fee-only world was not going to be an easy task. “For a long time people couldn't figure out how to make money in fee-only, or how to pay sales people or advisors as lucratively as they do at wirehouses,” Camarda says.
It was after Camarda received a number of industry designations — including the CFP, as well as a Ph.D. in finance, in 1996 — that he says he really came to appreciate the fee-based model. Camarda built his RIA from scratch, focusing on a core client base of retired professionals and business owners with $750,000 to a few million in assets. Three years later, he gave up most of his $50 million dollar book to manage and grow the firm. Today Camarda is at the helm of the 15-person organization, located in Fleming Island, Fla. His wife, Kimberly Camarda, is the president and chief compliance officer; Tim Schick is the director of portfolio management. Together the three make up the portfolio management board, which oversees service to some 500 clients and $200 million in assets.
“It did take a while to lay the groundwork and figure out the systems,” Camarda says, but all that hard work seems to be paying off. In the past five years, Camarda says his compensation has roughly doubled each year. And he expects more of the same this year.
In 2007, like in 2006, practice owners like Camarda were the biggest earners: Average compensation for practice owners sat at $255,395 in 2007, according to data collected for Registered Rep.'s 2008 annual compensaton report. Compare those figures to the average compensation for advisors working at a wirehouse, of $217,625, and at a dually reigstered RIA, of $192,692. The average for all respondents sat a hair lower at $190,682.
But wherever they worked, most advisors managed to take home a lot more pay in the calendar year 2007 than they did in 2006, and they expect similar success this year. More than three-fourths of respondents (77 percent) experienced an increase in compensation in the calendar year 2007, with an average growth of 16.1 percent. Meanwhile, 79 percent expect another increase in compensation in 2008, and estimate an average increase of 16.5 percent. It's interesting to note that the data was collected between mid-March and early April — when bad news about the credit crunch was dominating the front pages.
“Even with the market fluctuations and the instability of the economy that we're dealing with, consumers are seeking advice,” explains Dennis Gallant, principal of consulting firm Gallant Distribution Consulting in Sherborn, Mass. “There is a demand for experienced advisors.”
However, some industry compensation experts forecast a bumpier ride in 2008. It's not all doom and gloom, but then, “It's not an upwardly trending pay environment” either, says Alan Johnson, managing director of Alan Johnson Associates, a leading executive compensation consultant firm in New York. “That doesn't mean that individual advisors won't do great. But I think that everybody we talk to thinks it is going to be very hard to match 2007 to 2008.”
Making Up The Difference
Indeed some advisors are feeling the pinch — particularly fee-based advisors — as volatile markets cut into the value of the assets on their books. But the best of them are finding ways to keep the money flowing to their firms — and into their own pockets. For many that means making a bigger effort to differentiate themselves from the competition. “Differentiation is almost a constant drumbeat with everyone we talk with,” says Barry Mendelson, a Founder and Managing Director of Capital Market Consultants (CMC), a business consulting, advisor training, and investment advisory firm helping financial institutions and advisors. While smaller firms tend to emphasize their intimacy or “boutique-ness,” larger firms tend to emphasize their comprehensive research, process and the breadth of their product offering.
Tom Gau, CFP and president of AIG-affiliated Retirement Planning Specialists, Inc., in Ashland, Ore., says that in the first quarter, assets under management at his firm dropped 6 percent to around $500 million in assets (the S&P 500 declined 9 percent). But the firm also managed to add $15 million in new client assets. “A lot of people are dissatisfied — not just with respect to the returns, but with regards to the service they're getting from their existing advisors,” Gau says. “If you show someone something that has been overlooked and you don't have to say anything bad about the other financial advisor, the facts speak for themselves,” he says. But Gau says he's also working harder to keep his current clients happy: This past quarter, he says he held two conference calls with Q&A sessions for clients. Typically he just hosts one per quarter. In addition, he decided to tape record the calls so that clients who could not listen in could still catch them at another time.
For many, finding new streams of revenue means more aggressive prospecting. “This is a prime time to go prospecting,” says Timothy Welsh, president of Nexus Strategy, a wealth management consulting firm. “You only have to have one message now. You go out and you ask your clients for a referral, and you say, ‘how satisfied are you with the performance of your investment?’”
Another advisor, who's only in his first year of production at Lincoln Investment Planning, a full-service b/d and RIA, says he's had particular success with do-it-yourself-ers who are spooked by the markets and have decided they need some help. “A decent amount of Vangaurd/Fido ‘gunslingers’ are realizing they aren't Gordon Gekko,” he says. He also echoes Gau, saying a lot of prospects are unhappy with their current financial advisors: “They're losing money and they don't know why.” He's been able to convince them he can do better.
For still others, alternative payment arrangements can make up the difference. Nancy T. Bryant, principal of fee-only RIA, Bryant Financial Advisory, says that 18 months ago, she started using retainer fees with more of her clients in an effort to establish a more reliable revenue stream. In other words, the fee is not calculated based on assets under management, nor is it tied to hours worked: It is a fixed fee (i.e. $10,000 a year) outlined in a contract between the client and advisor that is paid out quarterly (i.e. $2,500 each quarter). She also decided to stop taking on hourly clients.
Wheat Vs. Chaff
Camarda says that no matter what your strategy, being a fiduciary definitely helps. “We have found that bad markets tend to be particularly good for us because the contrast between us and some of the non-fiduciary competition is clearer at times like this.”
The survey data actually bear this out: Being a fiduciary added a little extra padding to an advisor's paycheck in 2007. Advisors who “always” act as a fiduciary have an average compensation of $186,583, compared to those who say they “never” act as a fiduciary, who reported average compensation of $174,872. Although that is only about a $10,000 difference, in strained markets the stakes are higher, and any sort of edge over the competition helps.
Ultimately, keeping the engines of growth humming takes a lot of work, and volatile markets tend to separate the wheat from the chaff in the advisory business. In fact, these days what it means to be a big advisor versus a small one seems to be changing, says Mindy Diamond, founder of Chester, N.J.-based recruiting firm, Diamond Consultants, and a columnist for Registered Rep. “The definition of a smaller producer has simply gotten larger,” she says, jumping from $250,000 or $300,000 in annual production a few years ago to $500,000 today.
And it's only the biggest of the “big” guys who get compensation perks and fat recruiting deals. Diamond says she expects firms will respond to the current downturn by managing payout, rewarding the biggest producers and cutting back for the smallest. It's not surprising since many firms find themselves in cost-cutting mode.
“There may be a reduction of base compensation for the masses, rank and file, but people with several hundred million in AUM have something to talk about,” says David Harmon, a partner of the law firm Norris McLaughlin & Marcus, a firm focusing on employment law, specifically executive compensation and employee benefits.
The Average Advisor Respondent in Registered Rep.'s 2008 Compensation Survey for the calendar year 2007
Sex: 85% male
Education: Bachelor's Degree, 60%; Master's degree, 22%.
Years in the Business: 14
Assets Under Management (AUM): median, $36.8 million; mean, $70.6 million
Gross Production: median, $280,434; mean $429,976
Payout: median, 43%; mean, 51%
Compensation (commissions, fees, deferred-comp, bonus): median, $135,333; mean, $190,682
Length of Service: 70 percent have worked five years at most recent firm
Who's Got What?
On average, dually registered RIA advisors managed the most assets in 2007. At $93.6 million, this was almost a third higher than the overall mean.
|$ in Millions||Total||Wirehouse||Regional||IBD||Dually Registered (RIA)||Bank Brokerage/Bank Trust||Other|
|Less than $10||25.5%||16.5%||13.6%||25.7%||32.1%||23.4%||49.3%|
|$10 to $24.9||15.7||6.6||30.3||25.7||17.0||4.3||13.4|
|$25 to $49.9||17.8||19.0||18.2||20.3||13.2||25.5||10.4|
|$50 to $59.9||5.4||6.6||4.5||2.7||3.8||10.6||4.5|
|$60 to 69.9||4.4||5.0||9.1||4.1||5.7||2.1||-|
|$70 to $79.9||3.5||5.8||3.0||4.1||-||4.3||1.5|
|$80 to $89.9||3.0||5.8||1.5||2.7||1.9||2.1||1.5|
|$90 to 99.9||1.2||0.8||-||1.4||1.9||2.1||1.5|
|$100 to $124.9||6.5||9.1||7.6||2.7||3.8||6.4||7.5|
|$125 to $149.9||3.5||6.6||1.5||4.1||-||6.4||-|
|$150 to 174.9||2.1||4.1||3.0||2.7||-||-||-|
|$175 to $199.9||1.4||1.7||4.5||-||-||-||1.5|
|$200 to 299.9||4.2||6.6||1.5||1.4||3.8||4.3||6.0|
|$300 to 399.9||0.9||1.7||1.5||-||1.9||-||-|
|$400 or more||3.7||3.3||-||1.4||13.2||6.4||1.5|
|Est. Mean in $ millions||$70.6||$91.4||$57.9||$46.5||$93.6||$79.6||$47.8|
|Est. Median in $ millions||$36.8||$63.3||$35.4||$24.2||$28.6||$47.9||$11.7|
Reeling In Dollars
Dually registered advisors and wirehouse advisors generated the greatest production, on average.
|Total||Wirehouse||Regional||IBD||Dually Registered (RIA)||Bank Brokerage/Bank Trust||Other|
|Less than $100||23.6%||17.4%||13.6%||27.0%||32.1%||10.6%||43.3%|
|$100 to $149,999||8.9||5.8||15.2||9.5||9.4||4.3||10.4|
|$150,000 to $199,999||7.5||5.8||12.1||12.2||5.7||8.5||1.5|
|$200,000 to $249,999||6.3||3.3||12.1||4.1||3.8||10.6||7.5|
|$250,000 to $299,999||5.4||5.8||4.5||5.4||5.7||8.5||3.0|
|$300,000 to $349,999||6.8||13.2||4.5||-||5.7||10.6||3.0|
|$350,000 to $399,999||5.8||7.4||7.6||6.8||-||4.3||6.0|
|$400,000 to $449,999||4.0||1.7||7.6||8.1||-||6.4||1.5|
|$450,000 to $499,999||3.0||3.3||-||4.1||3.8||8.5||-|
|$500,000 to $549,999||6.3||9.1||3.0||5.4||3.8||6.4||7.5|
|$550,000 to $599,999||1.9||3.3||-||-||-||4.3||3.0|
|$600,000 to $649,999||1.9||1.7||6.1||-||3.8||-||-|
|$650,000 to $699,999||0.9||0.8||-||1.4||1.9||-||1.5|
|$700,000 to $749,999||1.2||1.7||-||-||1.9||4.3||-|
|$750,000 to $799,999||2.6||2.5||3.0||4.1||1.9||4.3||-|
|$800,000 to $849,999||0.7||1.7||-||-||-||-||1.5|
|$850,000 to $899,999||0.7||1.7||-||-||-||-||1.5|
|$900,000 to $949,999||0.7||1.7||-||-||-||2.1|
|$950,000 to $999,999||0.5||0.8||-||1.4||-||-||-|
|$1M to $1,999,999||6.1||8.3||6.1||6.8||7.5||-||4.5|
|$2 million or more||4.0||2.5||3.0||2.7||9.4||6.4||3.0|
|Est. Mean In $ Thousands||$430.0||$486.0||$397.0||$392.0||$503.0||$460.0||$324.0|
|Est. Median In $ Thousands||$280.0||$347.0||$237.0||$217.0||$225.0||$340.0||$136.0|
|Commission||fee-based asset management||Commission and fee-based asset management (mutual funds)||Compensation and Fee-based investment management (securities)||Financial planning fees and commissions||Brokerage services-commission only|
|Less than $20,000||2.5%||5.7%||-||1.1%||9.4|
|$600,000 or more||2.5||8.5||7.7||4.5||2.4|
•In March 2008, Registered Rep. invited over 12,000 of its subscribers — including reps, branch managers, chairmen, CEOs, presidents and financial planners — to participate in an online survey about advisor compensation. There was a response rate of 1.9 percent, or 428 respondents.
|Total||Wirehouse||Regional||IBD||Dually Registered (RIA)||Bank Brokerage/Bank Trust||Other|
|Total||Stockbroker/Registered Rep||Financial Planner||RIA/IAR||Other|
|Compensation||Total||> 35%||35% to 50%||50% to 80%||80% to 90%||90% +|
|Less than $20,000||5.1%||12.1%||2.5%||4.0%||2.3%||4.4%|
|$600,000 or more||5.6||3.0||3.8||5.3||7.0||17.8|