(Dow Jones) In their quest for a quick boost in pay, financial advisors can make the mistake of overlooking the long term.
Many move among brokerage firms in return for big signing bonuses or a somewhat higher payout tied to their annual production. But the place where an advisor can ultimately make the most money depends on more than that.
"The real question is...where can you best grow your business," says Andy Tasnady, a financial advisor compensation consultant with Tasnady & Associates. And the answer, he says, is different for every advisor, depending on the technology and training they need, the level of competition at the branch, the relationship with the manager and possibilities for marketing.
Advisors have several types of firms to move around to, including the biggest brokerages known as wirehouses, mid-size and regional firms, independent contractors and boutique registered investment advisors. When they get blinded by a wirehouse's million-dollar signing bonus, or the allure of a smaller firm's more generous payout grid, it doesn't always work out as they hoped.
"Regionals are full of ex-wirehouse brokers who left to make a little more money," Tasnady says. What many didn't consider: "The compensation grid difference between the brokerage channels isn't as great as your ability to grow your business is."
For example, if an advisor whose yearly production is $250,000 in fees and commissions moves from a firm that pays him 35% to another that pays 40%, his income goes up from $87,500 to $100,000. But if he stays in the original company, and it helps him build his production up to $350,000, he'd be taking home $122,500.
"An advisor who moves only for the up-front money is much more likely to lose money in the end," says Mindy Diamond, a financial advisor recruiter with Diamond Consultants.
Typical wirehouse advisors are more in the $400,000 to $800,000 range, and take home about 40% of the fees and commissions they generate from clients, known as their production. The higher the production, the higher the percentage they get to keep.
Smaller and regional brokerages allot advisors, especially the lower-tier ones with less than $300,000 in production, a bit more than the wirehouses. The wirehouses' grid pay is punitive, moving those who stay at lower production levels after multiple years with the firm to a lower payout percentage.
Independent contractors and RIAs have the highest payouts-typically around 90% of their production-because they have to pay their own business costs.