News

SURVEY PUTS MEDIAN AT $115,000: PLANNER PAY TAKES 13% CLIMB

Financial planners rode the bull market to a 13% surge in income last year, earning a median $115,000 before taxes, according to a salary survey by InvestmentNews. They would have earned a lot more, though, had they spent more time on fewer, but more lucrative, clients, one consultant insists.

More than 30% of respondents to the survey reported at least 300 clients, and another 13% had more than 200. “There’s just no way to serve that many clients effectively,” says Mark Tibergien of Moss Adams in Seattle. He says planners should manage 100 to 150 clients.

“Either you’re counting clients who aren’t active and should be let go, or you’re dealing with too many small clients who are sucking up resources from the practice.”

In a year when Standard & Poor’s 500 stock index returned 28.4%, making money wasn’t exactly tough for most advisers.

Self-employed planners report the biggest jump over 1997 earnings — an S&P-like 26% — bringing their median to $110,000.

Those working at financial planning firms say 1998 incomes rose 6% to $117,000, while those affiliated with broker-dealers report an 8% increase, to $106,000.

The InvestmentNews survey is based on questionnaires mailed to 2,500 members of the International Association for Financial Planning and the Institute of Certified Financial Planners. Responses were received from 314, or 13%.

“It’s been hard not to look good in this market, and the income figures reflect that,” says John Bowen, chief executive of Assante Capital Management, the Canadian giant that’s been expanding in the United States.

But with the explosive popularity of index mutual funds and mutual fund supermarkets, and with low- or no-cost trading and information increasingly available on the Internet, he warns, it’s getting more and more difficult for financial planners to stay ahead.

“Such increases will be impossible to sustain if we don’t get serious about adding value, because we certainly can’t compete on price,” Mr. Bowen says.

Fee-only planners’ incomes jumped 18.6% to an average of $125,000, but commission-based planners saw an even more dramatic gain — 22.9%, to $168,000.

Planners using a mix of fees and commissions say their incomes increased 10.8% to an average of $172,722.

The disparity between fee-only and commission-only planners makes sense in a bull market, says Gary Schatsky, vice chairman of the National Association of Personal Financial Advisors, a fee-only group based in Buffalo Grove, Ill.

More commissions are generated in a surging market, but clients signed on by fee-based planners in good times are more likely to stick with them in bad times, generating a slower, but steadier rise in revenues, Mr. Schatsky says.

Fee-based planning, he observes, is booming, with his group recording 30,000 inquiries from consumers last year — although membership has stalled at around 600.

Cloudy mirror

“The data doesn’t properly reflect our community,” he says of the study. “IAFP and ICFP are not exactly bastions of fee-based planning.

Still, many in the industry say the fervor of the fee-only movement has abated in recent years, with many planners opting for some combination of fee and commission structures among clients whose incomes can vary widely.

#. “In the last three or four years, most of us haven’t lost more than one or two.”

Mr. Schwartz, whose firm uses both fees and commissions, has gone from commission-only to overseeing $400 million in fee-based accounts — and deriving 30% of revenues from fee-based money management — in four years. More and more Cambridge reps offer some form of fee-based service, a trend Mr. Schwartz expects to continue.

Fee-chargers say whee!

“Fee business is definitely eating into commission-only guys,” he explains. “Ten years ago, there would have been an even greater disparity between fee-only and commission-only incomes. And I wouldn’t be surprised if 10 years from now you see a huge majority of planners offering both, instead of one or the other.”

Mr. Tibergien agrees:

“The biggest mistake the profession has made was attempting to be righteous about which type of business is better,” the consultant says. The conflict-of-interest issue (the fee-only camp accusing the commission camp of churning accounts) is just inflammatory. Conflicts exist in every business. From a business standpoint, the more ways you can service your clients, the more consistent and predictable your income will be, and the better off you’ll be.”

The survey also found that the median amount of assets under supervision for the planners who responded is $16.9 million, with the largest sector, 31.7%, supervising between $10 million and $25 million.

Planners based in the West reported the highest average income – $182,000, followed by Northeast and Central region planners. Planners in the South earned the least, an average of $141,000.

Female planners’ incomes trailed their male counterparts’ significantly: Women reported an average income of just $119,000, 31.3% less than the $173,000 average for men.

Eighty-one percent of respondents said they were registered investment advisers, and 84% said they offered comprehensive services.

Sixty-nine percent of respondents said they planned to increase assets allocated to mutual funds, 52% said they would increase assets allocated to insurance, and 46% said they planned to increase holdings in annuities.

The majority of respondents said they didn’t plan to increase or decrease allocations to such investments as domestic stocks, international stocks and bonds, taxable and tax-exempt bonds, money management accounts, REITs, limited partnerships, mortgages, private placements and derivatives.

In no case did the number of respondents planning to decrease assets allocated to a specific category exceed the number planning to increase the allocation or leave it unchanged.