How Much Does a Financial Advisor Make?
Eric Muir asked:
How much a financial advisor makes depends on many factors not the least of which is how they charge clients for their services. The most common fee structure for experienced financial advisors is a fee-based compensation arrangement based on a flat percentage of a client’s assets under management. A typical fee is 1% of the portfolio value charged annually.
According to Money magazine, the average financial advisor makes $120,000 a year so as a fee-based advisor you would need $12 million in investments under management with a 1% fee to earn that $120,000. But, not all of that 1% fee is profit – much of it is consumed by taxes and other expenses.
For example, around 20% of that yearly fee goes to an advisor’s broker dealer for back-end services like processing trades, handling compliance issues, supporting trading software, clearing payments, and client statements. From what’s left, an advisor needs to pay other business expenses like the office lease, internet and phone service, accounting, insurance, and corporate taxes. This takes off another 30% and personal taxes takes off another 30% which leaves 20% of the fee as profit.
So, of that $120,000 average salary the advisor is left with around $24,000 in profit. That figure doesn’t have the same impact as $120,000 a year but when you divide that out by month that’s $2,000 a month in profit – not too shabby.
Another thing to consider when looking at how much the average financial advisor makes is the fact that there are many financial advisors out there, especially new financial advisors, not making anywhere near $120,000 per year. When I started out as a financial advisor, I was making $24,000 a year and that was a fairly generous stipend for someone new to the industry.
Of course that amount was supplemented with commissions and other bonuses but when you consider that so many newer financial advisors are making so little that means the top 50% must be making significantly more than the $120,000 per year average.
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How much a financial advisor makes depends on many factors not the least of which is how they charge clients for their services. The most common fee structure for experienced financial advisors is a fee-based compensation arrangement based on a flat percentage of a client’s assets under management. A typical fee is 1% of the portfolio value charged annually.
According to Money magazine, the average financial advisor makes $120,000 a year so as a fee-based advisor you would need $12 million in investments under management with a 1% fee to earn that $120,000. But, not all of that 1% fee is profit – much of it is consumed by taxes and other expenses.
For example, around 20% of that yearly fee goes to an advisor’s broker dealer for back-end services like processing trades, handling compliance issues, supporting trading software, clearing payments, and client statements. From what’s left, an advisor needs to pay other business expenses like the office lease, internet and phone service, accounting, insurance, and corporate taxes. This takes off another 30% and personal taxes takes off another 30% which leaves 20% of the fee as profit.
So, of that $120,000 average salary the advisor is left with around $24,000 in profit. That figure doesn’t have the same impact as $120,000 a year but when you divide that out by month that’s $2,000 a month in profit – not too shabby.
Another thing to consider when looking at how much the average financial advisor makes is the fact that there are many financial advisors out there, especially new financial advisors, not making anywhere near $120,000 per year. When I started out as a financial advisor, I was making $24,000 a year and that was a fairly generous stipend for someone new to the industry.
Of course that amount was supplemented with commissions and other bonuses but when you consider that so many newer financial advisors are making so little that means the top 50% must be making significantly more than the $120,000 per year average.
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| Print article | This entry was posted by wowmynews on 11/02/2009 at 09:20, and is filed under Careers Employment. Follow any responses to this post through RSS 2.0. You can leave a response or trackback from your own site. |
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