Owners of financial advisory firms average more than a half-million in annual income, new research shows.
This finding is unveiled in the “2015 Adviser Compensation & Staffing Study” conducted by InvestmentNews Research and The Ensemble Practice. The report examines compensation data from 363 advisory firms that supplied financial information for their organizations, as well as compensation, staffing, strategy, and management data on their practices.
The report pegs the average, pre-tax annual income for a “typical owner” of a financial advisory firm at $527,000. This compares with $465,000 in in 2013, a 13.3 percent rise.
The report attributes the double-digit rise in owner compensation mainly to a “leverage effect:” empowering lead advisors who earn a median of $143,000 and oversee an average of $478,000 in “revenue responsibility” to tap the owners’ experience and skills.
Advisors’ compensation is rising in tandem with revenues generated by their firms, which have doubled in the last five years. In 2014, advisory firms revenues grew by an average of 13.5 percent (a dip from the 15.5 percent rise posted in 2013). Enjoying the most significant growth rates are “super ensemble firms” that garner more than $10 million in revenue.
“[These firms] are achieving exceptional results and demonstrating the advantages of size, providing access to better clients and perhaps better employees,” the report states.
The study adds that a growing number of advisors at independent firms are in fact employees. Salary compensation for most of these workers has remained largely unchanged since 2013, but employee income continues to show gains due to incentive compensation (bonuses) and promotions.
Gains in compensation and firm revenue aside, the study’s authors’ caution that “growth remains fragile” in respect to new client acquisition. These clients account for about half of the increase in fee-generating assets under management.
Among the report’s additional findings:
New clients yielded an 8.9 percent rise in assets under management or AUM.
Lead advisors in super ensemble firms have a median total compensation (salary and incentives) of $165,000 compared to $143,000 for other firms.
The median compensation for service advisors at super ensembles is $97,000 compared to $83,000 at other firms.
62 percent of lead advisors in super ensembles are certified financial planners (CFPs) compared with 52 percent at other firms.
“Throughout the study we find that the firms achieving the highest levels of performance are firms that focus on the fundamentals of management: attracting top talent, motivating employees and implementing a well-thought out strategy,” the report states. “Growth forces advisory firms to grow their expertise in managing people…”