Shopping around for a new broker-dealer to join? One of the most important things to consider is how much you’ll get paid. Looking at a financial advisor payout grid comparison can give you a better idea of the kind of compensation you can expect to receive from commissions. There are different factors that can affect what a firm’s payout grid looks like and how much its advisors can earn.
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Understanding the Financial Advisor Payout Grid
A financial advisor or broker payout grid is a breakdown of how advisors get paid when earning commissions on product sales. Every broker-dealer firm has its own financial advisor payout grid and payouts can vary widely from one firm to the next. What they have in common is that payouts are typically determined by two things:
- What’s being sold
- How much of that product is being sold and the resulting gross revenue that’s generated
Payout grids can base advisor pay on gross production or production credits. Gross production measures how much revenue a broker-dealer brings in for the sale of its products. Production credits, on the other hand, typically correspond to the amount of commissions earned from product sales. Between the two, a production credit model may result in a lower payout rate for advisors.
Advisors earn a payout ratio that aligns with the amount of revenue they generate from product sales. The payout rate or percentage usually increases as the gross revenue associated with a particular product increases. This type of payout structure incentivizes advisors to generate more sales as it means they’ll make more money in the long run (and so does the firm).
Broker-dealer firms can modify the payout grid to offer bonuses or higher payout rates to advisors for selling certain securities and achieving other benchmarks. For instance, bonuses may be awarded when advisors bring in a certain number of new clients or new assets on a monthly, quarterly or annual basis. Seniority can also play a role in determining the payout percentage an advisor earns, with newer advisors earning less and senior advisors earning more.
Financial Advisor Payout Grid Comparison Example
As mentioned, broker-dealers can use different methods to determine the payout grid for advisors, potentially resulting in a wide pay range from one firm to another. To keep things simple, we’ll offer an example of a payout model that’s based on annual gross production ranging from $300,000 to $2 million.
Here’s how advisor pay might break down based on increasing levels of gross production and corresponding increases in the payout rate, assuming the product in question is a mutual fund.
| Annual Gross Production | Payout Ratio | Compensation |
| $300,000 | 35% | $105,000 |
| $400,000 | 37% | $148,000 |
| $500,000 | 40% | $200,000 |
| $600,000 | 41% | $246,000 |
| $700,000 | 43% | $301,000 |
| $800,000 | 45% | $360,000 |
| $900,000 | 47% | $423,000 |
| $1,000,000 | 49% | $490,000 |
| $2,000,000 | 50% | $1,000,000 |
This example is not indicative of any one firm’s actual payout grid, but it does help to illustrate how much advisor pay can increase as gross production increases. For example, a difference of just one percentage point adds another $46,000 to your compensation total if you’re moving from $500,000 to $600,000 in annual gross production.
It’s important to note that the grid doesn’t factor in compensation from annual salary, bonuses or deferred compensation plan benefits if your firm offers one. Once those amounts are included, that could easily push your total compensation figure higher.
Comparing Financial Advisor Payout Grids
If you’re looking for your next role, it’s important to consider the payout grid carefully to understand how much compensation you stand to bring in. Even slight differences in payout rates can have a significant impact on what you earn. Running some sample calculations can help you see just how much of a difference a higher or lower payout can make.
You may also consider requesting a renegotiation of your payout grid if you’ve been at the same firm for some time and have no plans to leave. Keep in mind that you’ll likely need to provide justification for why you deserve to receive a higher payout ratio, based on your track record with the firm and the amount of revenue or clients that you bring in.
If you’re unhappy with your current firm’s payout grid and renegotiation isn’t an option, you might consider changing jobs or starting your own RIA firm. The latter is something of a process and it may require a significant investment of time and money. However, opening your own RIA establishment could give you more control over your earnings and the type of clients you choose to work with.
Should you decide to go this route, using an online lead generation tool could help you bring in your first clients as you get established. Add new clients and AUM at your desired pace with SmartAsset’s Advisor Marketing Platform. Sign up for a free demo today.
Bottom Line
A financial advisor payout grid comparison can offer insight into how advisors make money at different firms and give you an idea of what you might make should you decide to join one company in place of another. While advisor pay may not be the only thing that you’re concerned with when comparing job offers, it’s helpful to understand how payout grid calculations work and what they might mean for your overall compensation.
Tips for Growing Your Advisory Business
- SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- If you’re considering starting an RIA firm of your own, you’ll need to find a qualified RIA custodian to work with. This step isn’t optional and is required to be complicated with the SEC before you can start serving clients. RIA custodians are responsible for holding client assets. Researching different custodians to compare costs, services and features can help you narrow down the options.
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