It’s Time To Rethink Advisor Compensation Plans

62% of wirehouse advisors believe their compensation plans are too complex

March 9, 2023, BOSTON—Compensation packages are an influential component of advisor satisfaction, motivation, and commitment to their current firms. While advisors are generally satisfied with their compensation plans, there is room for improvement among wirehouses and large broker/dealers (B/Ds), according to The Cerulli Report—U.S. Advisor Metrics 2022: Trends in Advisor Compensation.

Cerulli’s research finds seven in 10 B/D advisors are happy with their current compensation structures. However, advisors in the wirehouse channel are significantly more likely to be displeased with their compensation structures (24%), compared to advisors at national/regional (5%) and independent B/Ds (7%).

Many firms, particularly the wirehouses, are consistently modifying compensation plans to achieve corporate-level initiatives and increase advisor productivity. While these changes may benefit the firm, they can be difficult for advisors to navigate—especially if adjustments are frequent. According to Cerulli, more than half (62%) of wirehouse advisors believe that their compensation plans have become too complex and 47% agree that their firm alters their compensation structure too frequently.

These changes can also alienate practices in certain segments, based on their tenure, core client market, or specialties. Targeted compensation strategies can enhance advisor retention and productivity if practices are motivated to achieve the highest payouts; however, this approach can also backfire if advisors view the thresholds as unrealistic or unattainable for them. Half of wirehouse advisors report that their firm’s compensation plan reflects factors they cannot control, such as years of service, and 30% of Millennial B/D advisors between ages 26 and 41 feel that account size minimums have limited their business development opportunities.

Compensation is already a leading motivator for advisors choosing to switch firms—close to half (45%) of advisors who switched B/Ds in the past three years cite the amount or structure of compensation as a key reason for joining a new firm. “These factors can impact not only advisors’ desire to switch firms, but also the transition to the independent channels, where they receive a higher payout and have greater control over their revenue,” says Marina Shtyrkov, associate director. “Wealth management firm leaders must set realistic goals, without sacrificing opportunities for advisors to thrive—regardless of experience level or practice type,” she concludes.

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Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.