One of the more popular questions that I am asked when traveling around the country speaking to firm owners is: “How much should I pay my new planner?” I liken this scenario to a prospective client walking up to a firm owner asking, “How much will I need to retire?” There are obviously a lot of factors that impact both of these situations. I am going to try to avoid the typical financial planner blanket answer of “it depends” to report on some averages/trends I am seeing nationally and recommendations I give to my clients. Keep in mind that factors such as firm geographic location, number of employees, revenue, AUM, experience, designations/licenses, and education can cause significant fluctuations in compensation.
There are three main components of compensation:
- Base compensation – remuneration paid to employee to complete the tasks required for the job. This is individual based compensation. I have a seen new planners being paid as little as $24k/yr. all the way up to $75k/yr. However, the majority are in the $38k – $55k/yr. range with the average around $52k/yr. though*. Keep in mind, this is assumes an entry level Associate Advisor type support position that is usually salaried, with little to no business development requirements.
- Incentive compensation – additional compensation that allows the employee to participate financially in the successes of the overall firm. This can be set up a number of different ways including overall firm revenue, number of financial plans written, client satisfaction survey results, or new business development, etc. Whatever you come up with, make sure the metrics to achieve it are clearly laid out and attainable so your new employee can have realistic targets to strive for and you have something to point back to if achievability is questioned. It’s important for firm owners to remember to refrain from handing out incentive bonuses at an employee’s annual review just because it has always been done that way. Incentive bonuses should only be earned when an employee goes above and beyond their stated job duties. Use the incentive compensation to motivate your employees to get the results you really want. In most cases, I think an incentive target of ~10% of base compensation is a good place to start. How this area is structured is currently all over the board, but I am a proponent of tying it to firm revenue.
- Employee Benefits – additional benefits provided by employers to enhance the two prior areas and sometimes referred to as non-financial compensation (although they still have financial costs). Items such as access to (and at least some contribution towards) health insurance, access to (and/or contributions to) retirement plans, and paid vacation are standard. Benefits that other firms are providing that you might want to consider include: continuing education program and travel budget, clothing allowance, cell phone/data plans, industry association annual membership dues, professional certification renewal fees, additional education reimbursement, professional sporting event tickets, personal financial planning, parking allowance, group disability, dental, and life insurance. Others that may be particularly popular with the Gen Y cohort include: Gym memberships, movie ticket subscriptions/concert tickets, flex time, dual computer monitors, cell phones and tablets (they even use them to stay in touch with the office!), and a solid supply of energy drinks and healthy snack foods. 🙂
Investment News recently had a webcast to discuss their most recent Compensation and Staffing Study Survey results. Here are some of the highlights:
- On average, employee benefits make up 9-12% of total employee compensation cost
- Firms are spending on average $4,500 per year per employee on benefits
- 67% of firms are providing 401k matching contributions of up to 3-4% of employee’s salary
The webcast is full of useful information and can be found at http://bit.ly/qbYRRM
There is also some additional worthwhile data being put forth by industry providers such as:
The Financial Planning Association (FPA) - http://bit.ly/qSpy7o
FA Insight - http://bit.ly/nUBkiy
Many firms are looking to hire new planners right now so it’s not uncommon for top candidates to have multiple employment offers. Great care must be taken to develop a competitive compensation package or firm owners will risk losing out to their competitors in the pursuit for this new in-demand talent.
- Michael will be speaking at the Business & Wealth Management conference on “MPT 2.0” and particiapting in their Leadership Forum on October 13th-15th.
- View Caleb’s recent article on How to Hire Right the First Time at http://bit.ly/mWTeBT
*2010-2011 FPA salary survey