Today, decent, ethical individuals without extraordinary sales skills or investment acumen are thriving, while delivering a favorable value proposition to consumers and charging them reasonable fees and commissions. Unfortunately, that's about where the good news on advisors' compensation ends.

 A new study conducted for the Financial Planning Association by Moss Adams LLP of Seattle spotlights just how fragile advisors' recent prosperity is. While it's true that more advisors than ever before are finally able to operate financially viable practices, the margins of success are still so thin that relatively small increases in expenses or decreases in revenue could jeopardize advisors' income.     According to the study, which surveyed 703 diverse firms, total take-home compensation among group practitioners is highest at those fee- and commission-based firms that derive 75% or more of their revenues from fees. Typical owners of these group practices earn $135,794 in total compensation each, compared with $115,942 at fee-only group practices and $122,245 at commission-only practices.

 The numbers aren't as good as they sound, partly because the figures incorporate the firms' profits on top of the owners' base salary. Despite the brisk growth of many practices, the rise in operating costs is exceeding revenue growth, and productivity is lagging.

 Both the fee-only and commission-based models have their flaws from a business viewpoint. With fee-only practices, operating expenses and productivity typically decline rather than increase with the addition of principals. However, the study notes that fee-only or fee-based practices are more scalable than their commission-based counterparts, and most observers believe that fee-only practices relying on assets under management have far greater resale value than those that rely principally on commissions.

 Perhaps more alarming is the way advisors view their practices. Mark Tibergien, a consultant at Moss Adams LLP and co-author of the study, declares it is striking how many financial advisors claim they are not in practice for the money. "I know of no other industry where the practitioners are as altruistic, except perhaps the medical profession," Tibergien says. "Planners don't think of their practice as an investment."

 Despite this attitude, many practitioners are counting on the equity in their firms to provide a major source of their retirement funding. A primary reason why more than 70% of the 350 contemplated transactions Tibergien has consulted on fail to be executed is that the sellers realize the proceeds won't be sufficient to finance their retirement.

 Less than half of the advisors surveyed who plan to retire within the next three years have an ownership-transition or management-succession plan, even though 94% say they feel financially prepared for retirement. Tibergien notes that even if they don't plan to retire any time soon, advisors need a buy/sell agreement in the event of death or disability. This is particularly true for the commission-based crowd. In fact, the National Association of Securities Dealers prohibits the transfer of commissions from a deceased licensee who does not have a buy/sell agreement to a family member unless the beneficiary is licensed.

 Advisors' altruism may be admirable, but it's also a cop-out. Moreover, it can ultimately be unfair to clients, Tibergien believes because inefficiencies compromise service quality.

 The goal of providing financial advice without providing for oneself leaves advisors highly vulnerable to a downturn in the financial-services industry and could ultimately leave clients in the lurch. Tibergien can't imagine many advisors telling clients who own small businesses to run their business and personal finances in the same way they run their own.

 Despite the relative strength and stability of fee-only practices, Tibergien recalls seeing the fear in many practitioners' eyes in the fall of 1998 after a 20% stock-market correction resulted in a concomitant drop in top-line revenues. That bear market was one of the most short-lived in recent memory. But had it been prolonged, advisors of all compensation stripes would have had to address the thorny issue of business profitability.