When it comes to compensation, industry recruiters say it's not just the amounts that matter to advisors. Two other prized qualities in firms' pay policies are simplicity and consistency from year to year.
As far as simplicity is concerned, advisors rarely get what they want. The industry trend, said Danny Sarch, the president of the recruiting company
"A cynical advisor once told me the first few pages of a pay policy tell you how you're being paid and the next 30 pages say how they can take it away," Sarch said. "Some small firms have kept their payout very stable. But the biggest ones, certainly the wirehouses, seem to tinker with their pay every year or every other year."
Louis Diamond, the president of the recruiting firm
"Every year it's more and more complex," he said. "They add something, and then the next year, they either double down on it, or they look to clarify it or to change a part of it. It just adds another wrinkle to the mix."
Staying basic at the base
But when it comes to advisors' base pay — the part of their compensation undergirding all the incentive bonuses and penalties — firms have managed to be more or less consistent.
In fact, Financial Planning's annual analysis of advisor pay grids offered by participating wirehouses and regional or national broker-dealers found no sweeping changes for 2024; Andrew Tasnady, a compensation consultant and the founder of Tasnady & Associates, conducted the analysis.
Rather than big changes, Tasnady said, firms opted for the sorts of tweaks they've been making year after year — the kind that require employees to produce just a bit more to
"The ongoing theme is that firms continue to make adjustments and to stretch their grids over time," Tasnady said. "They're reducing their comp a little bit as the average productivity rises for individual advisors."
Follow these links for breakdowns for 2024 advisor base pay at four different production levels:
Best advisor pay for the $400K producer Best advisor pay for the $600K producer Best advisor pay for the $1M producer Best advisor pay for the $2M producer
*All data is provided by the companies featured and compiled by Arizent, with analysis by Tasnady & Associates. Data from Edward Jones is average data and individual financial advisor experience there may vary.
Tasnady cautioned that the pay figures tell only part of the compensation story.
"These are a starting point," he said. "Because with every firm, in the footnotes, there's a bevy of nuances. Some firms give you a lot more money if you're growing. So there are growth bonuses. Some firms have penalties for small accounts. They might have zero payout for small accounts."
Of the changes made to base pay, Tasnady said, the most notable were at Morgan Stanley, RBC Wealth Management, Janney Montgomery Scott and Stifel. In general, these firms are all requiring their advisors to up their production rates to maintain the compensation level they were at last year.
Stifel steps up
Tasnady said he was most surprised by Stifel's decision to revise its compensation rates. The St. Louis-based regional firm, he said, has kept the same grid for years.
"It's the first time that anyone can remember they have changed their cash payout rate," he said.
Stifel's adjustment, Tasnady said, will make it just a little harder for advisors to reach the point where they get to take home half the revenue they generate for the firm. Previously, they were able to keep a quarter of anything they produced up to $12,000 a month and then half of anything after that. The new threshold is $15,000. For advisors who generate consistent amounts of revenue from month to month, Tasnady said, the change comes to a $9,000 reduction in cash compensation.
Tasnady said there's nothing really draconian about this adjustment; most of Stifel's competitors make similar adjustments every few years. Plus, Tasnady said, this past year's bull market made it unusually easy for advisors to increase their revenue numbers.
Market considerations
The S&P 500 broad index of U.S. public companies
With market valuations still high, crossing a slightly higher pay grid hurdle shouldn't be particularly difficult this year.
"So the firms are really just clawing back a little bit of the increased compensation that they're facing, just due to the market," Tasnady said.
Toughest for low producers
Where the higher hurdles will pinch the most is at the low end of the production scale. Stifel's change, for instance, will mean an advisor who produces $400,000 a year will take home $155,000 in cash this year, a more than 5% reduction from last year. But the Stifel advisor who produces $1 million this year will only see just a 2% decrease from $464,000 in take-home cash to $455,000.
Stifel is far from the only firm to make life a little harder for low producers. Most firms have been moving in this direction for years, Tasnady said.
"It's just the overall consistent trend," he said. "The shifts in comp have been to protect the high-end producers and continue to reduce comp at the low end to encourage advisors to be more productive as well as recognizing that the average revenue levels are increasing every year when the market goes up."
But the treatment of low producers still varies from firm to firm. Stifel, despite its recent change, remains one of the more generous firms to advisors generating $400,000 to $600,000 a year.
"But at Janney, they really just dropped the bottom out from their grid," Tasnady said. "They kind of raised the level at which you won't be in this almost penalty zone. So you are almost making twice as much at Stifel at $400,000 as you are at Janney."
Tasnady said the same variability can be seen among the wirehouses. Merrill, for instance, still offers what Tasnady characterized as "very reasonable" base payouts for lower producers: $162,000 in cash and deferred compensation for advisors who generate $400,000 a year. UBS, by contrast, pays the same producer $128,000.
To many, the message is obvious: Low-revenue advisors either need to move up the production scale or consider moving somewhere else.
"Merrill's paying 40%, and UBS is at 32%," Tasnady said. "So if you're at that level at UBS, you really have to do something to raise your production to a new level or start thinking about another firm where you're not so penalized."
Pushed out the door?
At a time when most firms are looking to add to their advisor headcounts, such incentives might seem counterproductive. But Diamond said there is a sense that low producers are a burden because they require the same amount of support services as everyone else but generate less revenue to pay for those services. Firms also tend to think that they'll be able to retain assets managed by low producers and shift them to higher-end teams.
"There are more and more million-dollar producers that are being minted every year," Diamond said. "And I think all the firms would rather focus on that segment than the smaller ones. I think they've figured out a way that, OK, if we have smaller ones we either need to find a way to make them really profitable for us, or we kind of don't really care that much if they decide to leave."
Smaller producers aren't the only ones feeling pressure. At Morgan Stanley, for instance, advisors at all production levels will have to find a way to generate 10% more revenue this year if they want the same percentage payout rate as they had in 2023.
Last year, the pay rate shifted from 48% to 49% once advisors crossed the $2 million threshold. In 2024, that change won't happen until they hit $2.2 million.
Tasnady said that change means a Morgan Stanley advisor who produced $2 million in 2023 will have to generate about $40,000 more in 2024 to make the $980,000 mix of cash and deferred compensation they got last year. Those who just hit the $2 million mark again will be out $20,000.
Small firms vs. big ones
Tasnady said a trend seen in previous years showing a difference between smaller and larger firms continued into 2024. Regional firms, he said, tend to be more generous in their base pay. The trade-off then is usually less support for technological systems, regulatory compliance and similar matters.
Wirehouses and other large firms, by contrast, are often stingier with both upfront cash and deferred compensation. But they'll be more likely to offer rewards to advisors who, for instance, add a certain number of high net worth households as clients in a given year.
"The basic comp is probably five percentage points lower," Tasnady said. "But the bigger firms will offer these behavior-based bonuses, which are not part of my analysis because it gets into apples and oranges comparisons. But there are growth bonuses, special bonuses for certain types of asset growth."
That's not to say that the big firms don't recognize the value of simplicity. Diamond said Wells Fargo deserves particular credit for setting clear benchmarks for
Merrill also took a step toward simplification when it eliminated a much-despised "growth grid" that had not only paid bonuses to advisors who added clients and accounts but also imposed penalties on those who fell short. Merrill's new system retains similar rewards while greatly reducing the downside.
Reason to leave?
Diamond said he doesn't envy executives who are in charge of setting pay policies. No matter what they do, even if it's a move toward simplicity and consistency, someone is going to be left unhappy.
"For every 50 advisors, there will always be 10 who love the changes, 20 who hate them and 20 who are indifferent," he said.
Diamond said advisors who are leaving a firm often cite compensation changes as a reason for their departure. Rarely, though, is it the deciding factor. More often, Diamond said, comp changes become the "straw that broke the camel's back" when added to a litany of other sources of dissatisfaction.
Tasnady's advice to advisors who are concerned about compensation is to not spend too much time comparing firms by their base payout rates. Far more important than differences in pay grids, he said, are the opportunities to grow that some firms provide and others don't.
Tasnady recommended advisors look to places where they can see their "business doubling in size in five years."
"Because that's how you make a lot more money, rather than whether you get 2% more or 10% more here versus another place," he said. "And that has to do with reputation and the team that you're on, and the resources you're getting and the products you're selling."
