I get a lot of e-mails and chat room inquiries (the preferred mode of communication of my generation) from NexGen advisors asking how much they should get paid. Often they want me to point them toward some published data tables where they can simply look up the job they currently have and read off what their comp should be. I think they’re often disappointed that my answer isn’t quite as simple as that.
While compensation isn’t brain surgery, it does involve a number of interrelated factors that can make each situation, if not unique, at least customized. Here are some guidelines to help you calculate how much you (or your employee) is worth, and how you can negotiate a compensation package that reflects your value.
As far as data sources go, the biennial Moss Adams Compensation and Staffing Study of Advisory Firms is by far the best (every other year, like 2008, Moss Adams’s Study focuses on firms’ financial performance). Moss Adams does a nice job of collecting data from nearly 1,000 advisory firms, and breaking it down by firm size, job descriptions, and various modes of compensation; eg., salary, bonus, incentive comp, and partnership interest. The Study presents the data so that practice owners can see what other firms are doing successfully, and not so successfully.
Yet young advisors attempting to apply these tables to their specific situations need to bear in mind that the Moss Adams’ figures are only industry averages. While they may reflect firm size, they don’t consider geographic location (a portfolio manager in New York will make more than his peers in Des Moines); the specific needs of a firm (a new lead advisor can be more valuable to a growing early ensemble practice with too many referrals than to an established firm just looking for another trainee for its pipeline); or what a practice can afford to pay (a solo practitioner who’s reinvesting most of her profits to grow her firm isn’t likely to pay top dollar for a support advisor no matter how desperately she needs one).Yet by considering a firm’s location, needs, and financial situation, NexGen advisors can negotiate a compensation package that is fair, and more important, will enable them to reach their goals.
Fairness is the key. Proposing a “fair” compensation package–and being able to back it up–is probably the most powerful negotiating tool you can have (see “Playing Fair” sidebar).
Both Sides Must Play Fair
Of course, you don’t want to just roll over, either–taking whatever low-ball offer an owner advisor offers. After all, bad faith works both ways: an employer who isn’t trying to be fair with you is usually a red flag. To sort out what’s “fair,” you need to assess your value in each particular situation. The first step in doing so is to calculate how much advisors like you are worth in this specific city–kind of like getting comps from similar sales to determine the value of a house. Different neighborhoods have different values. So the question is: What do other advisors with the same education, training, experience, job skills, maturity, and drive as you get paid in this town–or the town in which you want to work?
It’s not always an easy question to answer, but in this (as in many situations), knowledge really is power, and the more information you have, the better negotiating position you’ll be in. So you might start with the Moss Adams data (bearing in mind that I suspect it’s somewhat skewed to larger, more successful—and therefore, higher-paying—firms). Then ask around, use your networking skills to find out what other people make. Be creative; if you can’t find enough young advisors in your town, use examples from other similar towns. Remember, the goal is for you to know how much you’re worth, and to use that information to persuade your employer to more accurately value you, if need be. To avoid self-delusion and/or an unconvincing argument, just be sure your information is reasonable. No, your degree from the College of Financial Planning is not the same as an MBA from Wharton, and the two summers you spent selling popcorn at the local theater doesn’t equate to your buddy’s five years at Merrill Lynch. All kidding aside, it’s important to take an objective look at what you’re bringing to the table, and how people who are truly similar to yourself get compensated.