I just had a chance to look at the new 2007 Moss Adams Compensation and Staffing Study of Advisory Firms for my next column (the November issue of Investment Advisor). As usual, within Moss Adams’s mountain of data there are myriad themes of interest and value to financial advisors. I wrote about the danger of large firms using their financial muscle to attract the brightest and the best young financial advisor candidates out of smaller firms who will have to bear the burden of training young advisors, only to lose them when they are most valuable. But I also see signs that higher compensation for young advisors is changing practice economics for all ensemble firms.

With employee advisor compensation on the rise–lead advisor pay is up 41% in the past two years–it looks like the industry is finally correcting an old inequity. For some time, I’ve suspected that the extraordinarily high profitability of some ensemble firms resulted from underpaying non-owner advisors.

Even now, the 2007 Moss Adams Studay shows, the average productivity at mature ensembles and market dominating firms averages $511,750 in revenues per professional and $719,330 in revenues per professional, respectively. With lead advisors now making an average $150,000 a year, that leaves quite a gap, especially at the largest firms.

To keep those employee advisors from following the money and setting up their own shops, advisory firms need to make their compensation more equitable. Salaries are one the rise, but have a way to go before these advisors are making close to what they’re bringing in, even discounted for overhead and the convenience of not running their own firms. The larger firms have also stepped up with incentive compensation (69%) and opportunities for firm ownership (85%). But look for the increasing demand for professional employees to drive compensation up even further, eroding profit margins at the big firms, especially if growth in clients and assets under management begins to slow down.