have sold their controlling interest to private equity firms for stunning sums . The median salary for lead advisors ( not firm owners ) grew only 18 % over the past five years with an annual compound growth rate of 3.4 %. During the same period , Social Security payouts grew by 21 %. How happy can next-generation advisors be if they ’ re doing worse than their grandparents ?
According to Adam Smith , when demand is high , and the supply is low prices should be going up . Salaries are the price of talent , and that talent is in short supply ( all you have to do is go to a bar near any advisory conference , and you ’ ll hear how scarce it is ). Yet salaries are falling behind inflation ( if Social Security cost-ofliving adjustments are indication ).
advisors to stay , it ’ s important that you give them every opportunity to both contribute to your organization and build their own personal wealth .
Take Morton Wealth , where Stacey is a partner . The firm uses a three-prong compensation plan that includes 1 ) a fair salary , 2 ) advisors ’ participation in firm revenue or profit growth and 3 ) rewards for advisors ’ individual efforts .
The firm also offers advisors separate business development bonuses totaling as much as 50 basis points of first-year revenue for new clients .
Besides giving advisors opportunities to grow their book , you ’ ll also need to adhere to principles of fairness . In the past , compensation was not a hot topic ,
How happy can next-generation advisors be if they ’ re doing worse than their grandparents ?
It ’ s possibly because firms have added resources , such as centralized trading or client services , that have increased their productivity , allowing them to do more with less and put less responsibility on the advisors , who don ’ t need to be as experienced and thus don ’ t need to be paid as much .
But productivity should be only part of the story . This is still a relationship business , and the people holding on to those relationships should be rewarded for the recurring revenue and client referrals they ’ re bringing in . That reward has traditionally been equity . But increasingly firms are also using incentive compensation to share revenues and profits . If you want likely because the market was perhaps not functioning efficiently . Specifically , not a lot of advisors were changing jobs . This is known as a job market ’ s “ liquidity .”
You can see this phenomenon at work in the fastmoving tech industry : People who stay with the same company for more than five years may see their compensation lag 50 % behind that of job switchers . And there ’ s nothing that gets your employees angry like finding out that the new hire gets $ 20,000 more per year simply because they haggled with you . ( Trust us , they find out . And they get angrier when you try to explain it .)
This means you ’ ll need to start reviewing your compensation models once or twice a year . If you bring
36 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2023 WWW . FA-MAG . COM