Ever wonder how your salary matches up to that of your peers? Ever looked at how much you reinvest in your business and speculated on how that amount compares to the amount your competitors and the industry’s best firms reinvest in their businesses? This month, we take a look at how much average advisors invest in themselves and how much they invest back in their businesses. We also delve into how these numbers compare to the industry’s top firms by reviewing the percentage of expenses dedicated to income. The results may surprise you.
As an independent business owner, you are in the unique position of having some control over your income level. You decide how your expenses are allocated and have discretion over what you pay yourself. Advisors handle these choices in a variety of ways. Some advisors pay themselves as much as they can, while others try to put their income back to work in the firm. Our data (see Chart 1 below) shows that among 41% of surveyed advisors, 30% to 60% of expenses go to paying their salary. Conversely, an analysis of top firms* uncovers a completely different approach. A significant number of advisors in the “top firm” category are actually able to reach higher income levels by reinvesting their income in the actual business. Thus, the majority (67%) of top advisors pay themselves below 30% of expenses. In comparison, only 38% of average advisors choose to pay themselves less than 30% of expenses. This imbalance shows that in order to successfully execute a high growth strategy, organizations would do well to make significant investments in their firm’s personnel and infrastructure–thereby increasing long-term profitability and owner take-home pay.
It’s important to note, of course, that the top advisors oftentimes are the largest ones and therefore even by paying themselves a lower percentage of total expenses, they are able to pay themselves a far higher salary than advisors associated with the smaller practices (see chart 2: Median Pre-Tax Income by Owner by Asset Size).
The right faces in the right places
Another choice that you’re faced as a business owner is staff structure–both the number of staff members you have and the division of job types. Our research reveals that the industry’s top firms are far more likely to have staff structures more able to support the substantial growth of clients and/or revenue.