Very few wealth managers consistently earn $2 million annually. It’s just statistics. A $2 million income puts you in the less than 1% category of advisors—of all private wealth industry professionals—and everyone. To be clear, we’re talking about income, not revenue. It’s the money you take home after all expenses, including reinvesting in your advisory business.
So, there’s no confusion: You can do an excellent job for your clients, have a tremendous advisory business and life, and not earn $2 million annually. You can be tremendously successful and have a lower income. And there’s certainly nothing wrong with that. However, if you want to bring home $2 million annually, there are ways to make this happen.
Two Business Models
Based on an extensive ethnological study of advisors consistently making $2 million or more, and in some cases, many more, two business models are open to you. One business model is managing an advisory firm with multiple advisors, where you get an override on the business aside from the monies you may make working with a small number of clients. We refer to these advisors as management advisors.
The other business model is a boutique high-end practice. In this case, you’re working with a relatively small cohort of very profitable clients. These very profitable clients are mostly ultra-wealthy individuals who own or once owned businesses. We refer to these advisors as client-facing advisors.
Of course, there are variations and overlaps among the types of advisors. Think of the two types of $2 million annual income advisors as archetypes. By considering them as archetypes, you can better decide which business model suits you, and you might very well find some areas of intersection.
By design, the primary source of revenue in both these business models is AUM. That said, client-facing advisors often derive significant revenues from other financial services and products, such as life insurance, investment banking fees and wealth planning fees. Client-facing advisors commonly operate like a family office for clients. In contrast, management advisor firms are more solidly focused on investing.
While the management advisors might get some revenue because the advisors in their firm are providing some of these other financial products, there is a meaningful difference in size. For example, client-facing advisors often charge $100,000 or more for wealth planning, compared to fees of $5,000 to maybe $10,000 advisors in management advisor firms.
A critical difference between the two types of advisors is the nature of the clients they focus on. The clients of client-facing advisors are usually business owners with investable assets of $10 million or greater, with greater reaching into the hundreds of millions. When the clients lack the investable assets, their monies are tied up in their business, which they intend to exit relatively soon. The advisors in a managing advisor’s firm often do not work with business owners; if they do, the businesses tend to be relatively small. Instead, retirees, employees and executives make up most of their clients. Most of these clients have less than $5 million to invest.
Client-facing advisors usually have fewer than 50 clients demanding their time and energy. On the other hand, management advisors have hundreds of clients in their firm who are overseen by a cadre of advisors.
Another significant difference is where new clients come from. Client-facing advisors get their new clients primarily from other professionals, such as accountants and attorneys. While just about all advisors know that these other professionals are potentially great sources of new high-quality clients, only some can build the necessary relationships to get a steady stream of high-quality clients.
The management advisor’s firm's new clients come primarily from client referrals. Most professionals in the private wealth industry source new clients this way. It works, but it is a very reactive approach to business development.
The Better Business Model
Which business model is best? That all depends on your skill set and preferences. If corporate leadership and administration are not your forte, then running an advisory firm full of advisors isn’t going to work for you. An option can be to have someone else in charge of operating the advisory firm, and you can work with clients most of the time. This can work as long as you have equity or some similar arrangement.
Likewise, if you’re uncomfortable working with the ultra-wealthy, a boutique advisory practice will not give you a $2 million annual income. We’ve found ourselves in situations where advisors wanted to earn significantly more and, by adopting specific methodologies, were starting to work with ultra-wealthy families and found it wasn’t for them.
Once, an advisor engaged Russ to help him upscale his practice to serve the ultra-wealthy. Working with the advisor, Russ helped connect him with ultra-wealthy individuals and families, which were referrals from accountants and attorneys. The engagement was very successful from Russ’s vantage point as the advisor built an ultra-wealthy client pipeline, receiving three to five ultra-wealthy clients who were referred to the advisor monthly. Most of the clients were business owners looking to sell their companies.
While the opportunities were front and center, everything went sideways quickly. In less than a year, it became apparent that the advisor wasn’t comfortable working with families worth $50 million to $250 million or more. The advisor was uncomfortable with what it takes to guide these families from pre-sale planning and then through the sale and post-sale planning. This was not what the advisor wanted to do. Instead, he shifted gears, focusing on clients with one to five million dollars in investable assets. That was his choice, and it was the right choice for him.
You can become significantly more successful whether you choose the management or client-facing business model. We’ve seen advisors adopting the various best practices of these advisors and double their incomes in two years or less, even if they didn’t reach $2 million in annual income.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm.
Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.