Finding the right financial advisor is tricky. You want someone trustworthy, knowledgeable, and affordable.
As you search, one key question is: how much do financial advisors actually make? Understanding their compensation can help you find the right fit.
In this post, we’ll break down common salary ranges for financial advisors based on firm type, experience level, credentials, assets under management, and more. You’ll get a clear picture of advisor pay across different business models so you can make an informed choice.
Introduction to Financial Advisor Salaries
Financial advisors provide financial guidance to individuals and organizations to help them make sound investment decisions and plan for their financial futures. Their compensation is influenced by several key factors.
Defining the Role of a Financial Advisor
Financial advisors have a multifaceted role that includes:
- Developing comprehensive financial plans for clients based on their unique goals, time horizons, and risk tolerances
- Making suitable investment recommendations and managing investment portfolios to align with client financial plans
- Providing ongoing financial advice and guidance on topics like retirement planning, tax optimization strategies, insurance needs, college savings, and estate planning
- Regularly monitoring client portfolios and financial plans and making adjustments as needed
The day-to-day activities of financial advisors vary based on the size and type of firm they work for, but their core focus is helping clients make financially sound decisions.
Typical Salary Ranges
According to the U.S. Bureau of Labor Statistics (BLS), the average annual salary for financial advisors as of 2020 was $87,850. However, salaries can vary significantly.
Entry-level financial advisor salaries typically start between $40,000 to $60,000 per year. With several years of experience, salaries commonly range from $75,000 to $150,000. Top earners can make over $200,000, especially those managing high-net-worth clients.
Salaries also differ based on the business model and type of firm. For example, wirehouse firm advisors often earn over $100,000 on average, while independent RIAs may earn $90,000 on average.
Components of a Financial Advisor's Pay
There are two primary components of a financial advisor's overall compensation:
Base Salary
Most financial advisors earn a modest base salary that provides steady income. For newer advisors, base salary makes up a larger portion of pay.
Commissions or Fees
The majority of pay comes from commissions on products sold or fees based on the percentage of assets under management (AUM). Top advisors can get up to 50% of their fees and commissions.
Additional compensation can come from bonuses and other incentives tied to reaching certain production goals or revenue thresholds for the firm.
Understanding the mix of base pay, variable commissions and fees, and performance incentives is key to assessing a financial advisor's earning potential.
Salary Variations Between Firms
Financial advisory firms offer different compensation models depending on their structure and services. Understanding these differences can help advisors find the right fit.
Wirehouse Firms
Wirehouse firms like Morgan Stanley and Merrill Lynch typically offer a base salary plus commissions. Advisors must meet certain production goals to earn bonuses. Wirehouses invest heavily in advisor training and provide extensive resources. However, payouts to advisors are often lower compared to other models.
Regional Broker-Dealers
Regional firms such as Raymond James use a similar salary plus commissions model. However, regional broker-dealers may offer higher payouts to advisors compared to wirehouses. They provide less extensive training programs but allow advisors more independence in their practices.
Registered Investment Advisors (RIAs)
Many independent RIAs pay straight salary or salary plus discretionary bonuses. Hybrid RIAs integrate commissions on products as well. Salaries can vary greatly depending on firm size and structure. RIAs offer more flexibility but advisors take on more administrative responsibilities.
Independent Broker-Dealers
Independent broker-dealers provide high payouts in the range of 80-90% of total revenues generated. However, they offer less support infrastructure than wirehouses. Advisors must build their own book of business while handling tasks like compliance and technology. The independent model offers higher earning potential for established advisors.
Impact of Experience and Qualifications
Years of Experience
A financial advisor's salary typically grows with more years of experience in the field. New advisors often start around $50,000 to $60,000, while advisors with over 20 years of experience can earn over $200,000 on average. The key factors driving this salary growth are:
- Developing a larger book of business: With more years prospecting and serving clients, veteran advisors accumulate more assets under management. This results in higher revenue and payouts.
- Specialization and niche focus: Experienced advisors often concentrate on a specific client niche which allows them to better understand unique needs and provide tailored services.
- Leadership roles: Seasoned advisors may take on managerial positions to mentor newer advisors while still maintaining their own book of business.
Overall, the trajectory is not linear but does trend upwards over the course of an advisor's career. After the first 5 years, salaries usually escalate more rapidly once an established client base and expertise is achieved.
Credentials and Designations
Certain credentials and designations can boost a financial advisor's salary potential and professional prospects. Some of the most valuable include:
- CFP (Certified Financial Planner): Considered the gold standard for financial planning. Obtaining a CFP demonstrates mastery of comprehensive financial planning knowledge. Holders earn approximately 5-15% higher pay.
- CFA (Chartered Financial Analyst): The CFA charter signals proficiency in advanced investment analysis and portfolio management skills. Advisors with a CFA see even larger pay jumps - often over 20% higher salaries.
- ChFC (Chartered Financial Consultant): A ChFC certification focuses more on insurance and estate planning. It still carries meaningful weight and results in a modest bump in pay on average.
While not required, these designations show a commitment to education and qualification. Many firms use credentials as a factor when determining placement of advisors into tiered pay scales. They also allow advisors to take on more high net worth clients and manage complex portfolios - increasing production and compensation.
Assets Under Management
An advisor's total book of assets under management directly correlates to their earning ability. Most firms use a tiered payout structure where advisors earn higher marginal payout rates as their total AUM increases. Commonly, payout grids follow a progression like:
| AUM Level | Payout Rate |
|---|---|
| Under $100M | 25% |
| $100M - $250M | 28% |
| $250M - $500M | 32% |
| Over $500M | 38% |
This incentivizes advisors to continually expand their book in order to reach higher tiers. Top performing advisors at large brokerages often manage over $100 million in total AUM - translating to over $300,000 or more in annual fees at a 35-38% payout.
Meeting Production Hurdles
Within firms, meeting certain annual production hurdles can qualify financial advisors for higher pay. For example, some firms pay advisors 50% of yearly fees generated up to $250k. But advisors producing over $500k per year earn a 55% payout. Models vary, but the principle remains - exceed revenue milestones and you earn a larger slice of the pie.
To hit these increasing targets, advisors must demonstrate sound financial planning and investment management skills to retain and gain more high net worth clients. This enables them build out a book of business covering the full client lifecycle - not just prospecting new clients. Production hurdles reward advisors that deliver holistic financial services and superior performance for existing customers.
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Geography and Specialization Factors
Financial advisors' salaries can vary significantly depending on their geographic location and area of specialization. Advisors working with high-net-worth individuals or focusing on niche industries tend to earn higher incomes. However, the tradeoff is often working longer hours and taking on more complex client issues.
Geographic Pay Differences
There are major differences in average pay for financial advisors across metropolitan areas in the U.S. For example:
- New York City: $143,000
- San Francisco: $135,000
- Chicago: $120,000
Higher salaries generally correlate to areas with a greater concentration of high-net-worth individuals and businesses able to pay for wealth management services. The cost of living is also usually much higher in these cities.
Advisors in small towns or rural areas earn substantially less, often under $60,000 on average. There is lower demand and ability to pay premium rates in these locations.
High-Net-Worth vs Mass Affluent Clients
Financial advisors catering exclusively to high-net-worth families with over $5 million in investable assets can earn two to three times more than advisors serving the mass affluent market.
Top advisors working with ultra-wealthy families can make over $500,000. However, these clients often expect 24/7 availability, custom investment strategies, and involvement in complex areas like tax, estate, and legacy planning.
Most independent advisors have income ceilings around $250,000 working with regular upper-middle class clients. The work is less demanding but requires higher volume to achieve the same pay.
Niche Industry Expertise
Expertise in a specific niche like tech executives, medical professionals, or professional athletes leads to higher income potential for some financial advisors.
These advisors leverage specialized knowledge and networks to provide custom services. Being a true expert in a field can command fees up to 1% higher than typical advisors.
However, a niche focus also has limitations on client volume. The advisor must determine if higher fees justify narrowing the potential customer base.
Future Outlook for Financial Advisor Pay
Financial advising is projected to see steady job growth and rising salaries over the next decade. As more baby boomers reach retirement age and seek professional guidance on managing their assets, the demand for qualified financial advisors will continue to expand.
Projected Job Growth
According to the U.S. Bureau of Labor Statistics (BLS), employment for personal financial advisors is expected to grow by 15% between 2020-2030, adding nearly 98,000 new jobs. This rate of job growth is much faster than the average across all occupations. Key factors driving this demand include:
- Aging baby boomer population nearing retirement and seeking advisory services
- Increasing complexities of investment products available to consumers
- Growing high net worth population needing specialized wealth management
As more people recognize the value of professional financial guidance, job opportunities for qualified advisors should remain robust for years to come.
Key Drivers and Trends
Several macro trends are likely to push financial advisor salaries higher in the coming years:
- Aging demographics: With 10,000 baby boomers retiring every day, demand for retirement planning advice will skyrocket. Advisors who specialize in senior services may command higher pay.
- Rise of robo-advisors: Automated investment platforms are handling more routine services, allowing human advisors to focus on high-touch services. Advisors providing comprehensive plans and advice can justify higher fees.
- Increasing assets under management (AUM): As more wealth is accumulated by top income earners, financial advisors who service high net worth individuals will see their compensation rise in tandem with growing AUM totals.
Financial firms also face growing competition in attracting top advisors. To recruit and retain talent, salaries and bonuses for the most productive advisors are likely to increase at an above-average pace. Advisors who achieve advanced designations and credentials to showcase their expertise to clients can further boost their earning potential.
Conclusion and Summary
Financial advisor salaries can vary widely depending on factors like experience, credentials, firm type, and location. However, the earning potential in this career is quite high, especially for those who reach senior levels at large firms.
Some key takeaways around financial advisor pay include:
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Entry-level salaries typically start around $40,000 to $60,000. With 5+ years experience, pay often exceeds $100,000.
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Top earners at major wirehouse firms or private wealth management companies can make $300,000 to $500,000 or more.
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Key drivers of higher pay are assets under management, client portfolio size, and bringing in new high-net-worth clients.
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Certifications like CFP and CFA tend to boost salary potential. So does working for a major Wall Street firm.
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Major metro areas like New York and San Francisco pay more. Those working in smaller regional markets earn less.
In summary, financial advisors have strong income potential over the course of their career. But to reach the highest salary tiers requires factors like professional credentials, sales and relationship skills, developing extensive books of business, and positioning at high-paying firms. With the right mix, salaries above $300-500K are achievable.
