There are many different compensation structures for financial advisors. This is my take on those models and where I have seen the salary levels in each of these models.
The topic today is from a question that I have gotten several times over the past couple of months, which is how much money can you earn as a financial advisor. Talking about salary or income can be a bit taboo, so I’m going to just share a little bit about my own situation, but also speak to several levels of pay that I have seen amongst different advisors in the industry.
My goal for this video will be to give an honest look into compensation for financial advisors. The difficult thing is that there is such a wide range of compensation in this industry, that its hard for me to give you all a good idea of what your future compensation might look like. So I will give several examples of different advisors I have talked with and what I know about their pay.
First, its important to know the main compensation models in the financial advising industry. You have an all commission model, a performance-based model, and then a salary only model. The commission model is what I would consider the “old school” compensation model for financial advisors, but it is probably still the most popular in the industry. The way commission only works is that you are paid only from your personal book of business, which means fees and commissions generated from your clients’ accounts. Almost all financial advisors were paid this way back in the 70s and 80s, and still some firms like Morgan Stanley and Raymond James hire in young advisors to work under this model. There can be a couple problems with this. when you are starting off in your career, your pay will be very little or 0. and it can also create many conflicts of interest with your clients when you are paid just to trade their account or sell them products. Since you are paid only based on your client’s accounts, I have seen advisors in this model that make around $20,000 a year, and others than make literally over $1million every year. It is extremely dependent on your clients.
Next is what I’m calling a performance-based model, and this is how I am paid. This will look like half or most of your pay coming from a base salary, but then additionally compensation for things like growth of the investments for your clients or for the firm, brining in new clients to the firm, or other incentive-based metrics.
So when you talk about the base salary with this model, I think most advisors, once they have passed their regulatory licenses and start working with clients, make $30k-$50k in base compensation. Then for the inventive pay, I have seen anywhere from $5k per year to $20k per year for new advisors. Of course both of these parts of the equation will increase with time. And like I mentioned, this is the model I am paid through. I fell right in these ranges when starting off as an advisor. Future pay increases can come from base pay increases for good work performance, or from getting higher incentive pay or bonuses for hitting certain business metrics. Everyone’s situation can look different. So It is important to understand your own compensation package when considering any job.
Finally, you have the salary only model. This model is going to become more and more popular as more advisors sell their businesses as they retire, and larger firms have to hire younger advisors to service the clients. The salary only model is good because it prevents any conflicts of interests for advisors, but it also means your pay increases are totally dependent on your employer giving you raises. I know of a couple firms that pay their advisors with this model. They start at a base salary of about $60,000, and then have set raises that the advisors get every year as long as they are doing their job well. By your 30s and 40s, you can reasonably expect to be earning $200,000 per year. And realistically for a good advisor this number will be fairly consistent across the other compensation models by this point in your career.