Four key steps in the career of a top financial adviser

The career path of an independent financial adviser isn’t the entrepreneurial leap it was 30 years ago. Instead, a course of advances has emerged at many successful firms that bring higher compensation and more responsibilities with each step.

According to the 2013 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study, individuals typically follow a route that includes four roles: analyst/ paraplanner, service adviser, lead adviser and practicing partner.

Advisers may advance through the track at one company or move to the next position by switching to another firm. Companies that don’t offer a clear career track will be left behind in the struggle to find talented professionals, said Philip Palaveev, chief executive of The Ensemble Practice LLC, a partner on the study.

A look at how executive compensation has swelled as the advisory industry has grown.

Advisers should not expect to lure the next generation of advisers simply with additional cash compensation; candidates want to see how they can grow and develop with the firm, he said.

“People perform best when they are motivated beyond cash,” Mr. Palaveev said.

The four-stage career progression begins with the entry-level position known by many titles: analyst, paraplanner, support adviser, Level 3 adviser, junior adviser and others. They help more-senior advisers and may be one member of a three-part team that includes a lead adviser and a service adviser. They usually don’t work with clients or have revenue goals.

The analyst makes a median of $58,553, about 85% of which is salary, and earns an average of $6,400 in perks, according to the InvestmentNews study. They usually have about six years of experience, and 32% have their certified financial planner designation, the study of 309 advisory firms found.

Service advisers, by comparison, work with clients under the direction of a lead adviser, helping with routine tasks. They typically manage about $162,000 in revenue and have about 10 years of experience. About 45% hold the CFP mark.

These advisers earn a median of $81,332, 80% of which is salary, plus about $5,000 in perks, the compensation study found.

EMPHASIS ON SALARY

At all stages, there has been a shift away from payout-based variable compensation for advisers toward an emphasis on salary-based compensation supplemented by incentive formulas. About 16% of advisers were compensated on payout in the 2013 survey, compared with 35% in the 2011 study.

Kathy Fish, founder of Fish and Associates, said she pays a competitive salary plus a small amount of incentive pay based partly on how the firm performs as a whole, and also based on the individual’s performance over the year. She also offers non-cash compensation such as flextime and matches employee charitable contributions, and holds quarterly outings where the office does volunteer work. She also brings in a massage therapist each month.

“The little extras are so employees know they are valued,” she said.

Perks offered by advisory firms typically increase along with the size of the advisory firm, according to the compensation study. About 56% of firms allow staff members to work from home, 67% provide part-time employment and about 37% have maternity policies, the study found.

Lead advisers independently manage an average of 70 client relationships and guide the planning and investment decisions for clients. On average, the lead adviser is responsible for about $495,000 in revenue and is expected to generate $100,000 in new business each year, the study found. About 54% of lead advisers are CFPs.

With an average of 15 years of experience, these advisers earn a median of $134,000, about 82% of which is derived from salary. They take home about $11,134 in perks.

LARGER FIRMS, MORE PAY

Overall, the compensation varies according to the size of the firm, with each of these roles earning more at larger firms than at smaller advisory businesses.

Practicing partners typically do much the same as a lead adviser, but they are responsible on average for $525,000 in revenue and are expected to bring in an average of $200,000 in new revenue annually. They also manage an average of 95 clients, help run the firm and, of course, receive the compensation benefits of an owner.

Owner advisers earn a median of $240,000, about 73% of which is salary. Their perks are valued at about $20,000 and they generally have 20 years of experience. About 51% of practicing partners are CFPs, the study found.

WOMEN IN LOWER ROLES

Another interesting discovery in the study: The percentage of women in these four roles declines with each step up the career ladder. While 44% of analysts are women, 41% of service advisers are women, 36% of lead advisers are women and just one-quarter of practicing partners are women.

The study offers two explanations for this trend. The first is that a greater number of women have been joining the industry in recent years and they are still “bubbling up” through each role. If this is true, then about 40% of lead advisers should be female in the next few years.

However, the second theory is that women drop out of the career track before they reach the next promotion, perhaps to raise a family. If this is the case, then advisory firms will have to devise more-flexible work schedules and other incentives to keep women in the industry at a level more representative of the population as a whole, the study reported.

The industry also has shown steady growth in partner income, with more firms offering ownership interests. This is a positive trend, suggesting that more succession planning may be being done internally by the nation’s aging adviser base.

Michael Nathanson, chief executive of The Colony Group, recruits recent graduates and helps them advance through five levels of increasing responsibility at his firm.

As the study suggests, Mr. Nathanson’s firm gets “great people, and we retain them because they have a clear, long-term career path,” he said.