Elite registered investment advisors have achieved near-equal compensation with top-earning wirehouse advisors, according to research from Sanctuary Wealth Advisors.
When measuring advisor compensation before recruiting bonuses, wirehouse brokers that Sanctuary Wealth Advisors surveyed earned about $1.1 million from their firms between 2009 and 2011, compared with elite independent wealth advisors, who received an average of $800,000 from their practices. Total compensation for brokers, including $666,181 for amortization of recruiting bonuses, was $1.6 million, according to the study.
That gap will narrow between over the next three years, according to Sanctuary, which estimates that broker compensation will be $905,000, compared with $875,000 for elite independent wealth advisors. Sanctuary spoke to 60 former Wall Street brokers who earned a minimum of $2 million in production, and who now oversaw at least $500 million in assets as independent advisors.
Fees from stock and bond trading compressed, along with the big payouts from proprietary products, according to Sanctuary’s findings, which is available here.
“Wall Street is under significant profit pressures,” said Jeff Spears, co-founder and CEO of Sanctuary, a San Francisco-based hybrid RIA. “The firms do a very good job of evaluating each aspect of the business to ensure that the firm is making a good profit margin off of that unit.”
That means advisors at traditional brokerage firms are being squeezed between management cutting compensation on payout grids. Also, brokers are spending more of their time on, and deriving greater portions of their compensation from, fee-based investment consulting, which grew to 34% of compensation, an all-time high.
From 1995 to 2003, fee-based investment consulting represented 5% of broker compensation. They merely pushed commission-based products, Spears said.
Even more drastic compensation changes await brokers and RIAs, according to Sanctuary's survey. From 2012 to 2015, brokers will derive about 55% of their compensation from fee-based investment consulting, representing about $500,000.
“If the fee-only advice portion becomes greater and greater, advisors will keep more of that compensation than if they work on Wall Street,” Spears said.