Financial advisers have reaped double-digit pay gains over the past two years thanks to firm growth and increased profitability, superior market performance and demand for talented planners.
Compensation for the chief executive or president of advisory firms increased about 18% from 2010 to 2012, to an average of $281,966, according to the Financial Planning Association's latest Financial Planning Compensation Study, which surveyed 1,000 advisers. Compensation includes salary, bonus and incentive pay.
Total pay for three different levels of financial planners surveyed increased about 12% from 2010 to last year. Senior financial planners took in $145,308 on average in 2012, junior planners $68,610 and paraplanners $55,033, the survey found.
“Incomes in the industry today are at a record level, and firms are generating more profits than they ever have before,” said Philip Palaveev, chief executive of The Ensemble Practice LLC. “It's a successful and quickly growing industry.”
Adviser compensation has risen significantly as firms have grown in size and have begun to recover from the damage done during the financial crisis, Mr. Palaveev said. From 2008 through 2010, firms were very conservative with pay increases and typically cut owner compensation.
The increase in payouts for advisers in 2012 signals that “the restoration is complete,” and suggests optimism about the market, Mr. Palaveev said.
Growth in U.S. stock markets had a lot to do with advisers' compensation growth over that period.
“The organic growth of the market is giving you a raise just based on assets under management,” said Tim Welsh, founder of Nexus Strategy LLC, a consultant to advisers. “So something is going wrong if you didn't make more last year.”
The CEO and president titles showed the greatest pay increase because those roles typically exist only at a mature firm that has invested in professional management, and those are the most profitable advisory businesses, Mr. Welsh said. Those firms have invested in infrastructure and put processes in place that allow the adviser to focus on clients, he said.
Tim White, a recruiter at Kaye/Bassman International Corp., attributes about 80% of the increase in adviser compensation to the general rise in the markets, and much of the rest to advisers' increased use of alternative investments such as real estate investment trusts, which command higher fees.
In addition, adviser compensation is up because of higher demand for experienced and talented advisers, who are moving between wirehouses or to independent firms and securing large transition packages, he said.
“The baby boomer population of financial advisers who are close to retiring and may have one last move left in them are being offered deals that are off the charts,” Mr. White said.
The FPA's 2012 pay figures largely jibe with progress in the industry since the InvestmentNews/Moss Adams Adviser Compensation and Staffing Study of 2011, when pay was reported slightly lower in most positions. Mr. Palaveev is collaborating with InvestmentNews on its 2013 compensation study, and he said strong demand for talented, experienced advisers will continue to push compensation higher in the coming years.
Mr. White said the only thing he sees standing in the way of adviser compensation continuing to advance over the next few years is the possibility that the Financial Industry Regulatory Authority Inc. would require advisers to disclose incentive compensation upon switching firms. That could chill adviser movement, he said. Currently, Finra is accepting comments on such a proposal.
But with 66% of advisory firms reporting that they expect to boost pay again this year, the FPA study findings bode well for continued compensation growth. Mr. Palaveev, however, warns that growth at these levels won't last forever.
“We should not forget that it's not always going to be that way — these are the good times,” he said. “If you examine similar positions in the accounting industry, the compensation is growing much slower” because it's a mature industry, and the advisory business will be, too, one day, Mr. Palaveev said.