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What Advisors Think About Firm Compensation Strategies

Industry Trends and Research

Advisors are generally satisfied with their compensation plans, but there is room for improvement among wirehouses and large broker/dealers (B/Ds), a new report suggests.  

According to The Cerulli Report—U.S. Advisor Metrics 2022: Trends in Advisor Compensation, 7 in 10 B/D advisors are happy with their current compensation structures. Advisors in the wirehouse channel, however, are significantly more likely to be displeased with their compensation structures (24%), compared to advisors at national/regional (5%) and independent B/Ds (7%).

Many firms—particularly the wirehouses—are consistently modifying compensation plans to achieve corporate-level initiatives and increase advisor productivity. Cerulli observes that, while these changes may benefit the firm, they can be difficult for advisors to navigate—especially if adjustments are frequent.

In fact, more than half (62%) of wirehouse advisors believe that their compensation plans have become too complex. In contrast, 38% of advisors believe that their B/D’s compensation plan and criteria to maximize payout are too complex. Additionally, 47% of wirehouse advisors agree that their firm alters their compensation structure too frequently, compared to 15% of all advisors in the B/D channel.  These changes can alienate practices in certain segments, based on their tenure, core client market or specialties, Cerulli emphasizes.

Meanwhile, targeted compensation strategies can enhance advisor retention and productivity if practices are motivated to achieve the highest payouts, the report further notes. That said, this approach can also backfire if advisors view the thresholds as unrealistic or unattainable for them.

To that end, half of wirehouse advisors report that their firm’s compensation plan reflects factors they cannot control, such as years of service, while 22% of all advisors in the B/D channels agree with that standpoint. Moreover, 30% of Millennial B/D advisors between ages 26 and 41 feel that account size minimums have limited their business development opportunities.

Not surprisingly, compensation is a leading motivator for advisors choosing to switch firms. Close to half (44%) of advisors who switched B/Ds in the past three years cite the amount or structure of compensation as a key reason for joining a new firm.

In that regard, 88% of advisors cite that their B/D has made it easy for their practice to conduct fee-based business. While already encouraging, sentiment will continue to improve with the growth and evolution of managed account programs and overlay capabilities, Cerulli notes.

And while it is less favorable among B/Ds today, a salary-plus-bonus option may help attract and retain new advisors, the report further suggests. “Rookies often value the additional security as they build their practices. It will also prepare firms to better compete for new talent by easing the ‘eat what you kill’ reputations of many B/Ds,” the report states.

“These factors can impact not only advisors’ desire to switch firms, but also the transition to the independent channels, where they receive a higher payout and have greater control over their revenue,” notes Marina Shtyrkov, associate director at Cerulli. “Wealth management firm leaders must set realistic goals, without sacrificing opportunities for advisors to thrive—regardless of experience level or practice type,” she concludes.

According to Cerulli’s data, $278,000 is the median compensation earned by advisors at hybrid and independent RIAs. On average, 65% of RIA compensation is a result of base salaries and equity-based profit distributions. The remainder is largely derived from bonuses based on a percentage of total revenue and/or AUM.