How do financial advisors get rich?
The truth is that the real compensation comes from helping someone improve their financial situation by identifying opportunities to save and grow their money and make investing less intimidating. Financial advisors charge fees for this service, which can vary widely.
A commission-based financial advisor doesn't cost you anything—directly, that is. They get compensated by commissions from the products they sell to you or sell for you. Typical commissions for investment products and packages range from 3-6% of the sale.
Financial advisors who sail past low six figures and enter high six figures (and sometimes seven figures) have mastered two things: leverage and scale. Leverage is all about having things work separately from your time.
Just like any profession, there are good advisors and not so good advisors. I worked with probably 1000's of different advisors over the years and I can tell you that while all of them are not what many would consider rich, many of them are very comfortable. But numerous ones would be considered wealthy.
Wealth management is one of the highest-paying financial advisor jobs. They work with high-net-worth individuals and families to manage their investments and assets. Plus, they provide personalized investment strategies and financial planning services to help clients achieve their long-term financial goals.
A wealth advisor—or wealth manager—is a licensed financial advisor who helps high-net-worth individuals (HNWIs) and families manage their financial wealth. Wealth advisors work with clients to develop investment strategies, plan for retirement and create wealth-building plans.
Financial advisors typically make money by charging a fee for their services, either an hourly rate or a percentage of the assets they manage for clients. They may also earn commissions from investment products such as mutual funds, annuities, and insurance policies.
Of high-net-worth individuals, 70 percent work with a financial advisor. You can compare that to just 37 percent in the general population.
The wealthy also trust and work with financial advisors at a far greater rate. The study found that 70% of millionaires versus 37% of the general population work with a financial advisor. Moreover, 53% of wealthy people consider advisors to be their most trusted source of financial advice.
Odder still, 70% of wealthy Americans work with a professional financial advisor — and yet one-third still worry about running out of money in retirement.
Why do financial advisors make so much money?
First, if an advisor is a broker, which the majority of advisors are, they receive a commission based on the products that they sell and the investments they recommend. The commission can be upfront (when you buy), it can be on the back end (when you sell), or it can be trailing (they get paid a portion annually).
Financial advisor stress is real, and you're not alone if you feel the pressure. According to a survey carried out by Financial Planning Association, Janus Henderson, and Investopedia: 71% of advisors have experienced moderate or high levels of negative stress, compared to 63% of investors.
Lack of work ethic. It takes a lot of hard work and discipline to break into a career as a financial advisor. While many are willing to work hard for a period of time, fewer are willing and able to maintain the high-level work ethic required to survive and thrive as a successful advisor.
Currently, the best financial advisors in the US are BlackRock, Charles Schwab, Facet, Fidelity Investments, Edward Jones, Mercer, and Vanguard. Below, we've outlined each one of these advisory firms' active services, investing strategies, and pros and cons.
A wealth advisor is one of many types of financial advisors, but the term “wealth advisor” refers to an advisor who specializes in financial planning for extremely wealthy clients.
- Anesthesiologist: $239,200.
- Obstetrician and Gynecologist: $239,200.
- Oral and Maxillofacial Surgeon: $239,200.
- Psychiatrist: $226,880.
- Nurse Anesthetist: $203,090.
- Pediatrician: $190,350.
- Orthodontist: $174,360.
The average salary earned by financial advisors differs between states. The salary levels of financial planners are higher in cities with a higher cost of living. The highest salaries for financial planners are in Connecticut, Maine, Rhode Island, New York and New Jersey.
This fee can range from 0.5% to 2%. Usually, advisors that charge a percentage will want to work with clients that have a minimum portfolio of about $100,000. This makes it worth their time and will allow them to make about $1,000 to 2,000 a year.
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
While there's no legal standard when it comes to defining who is an ultra-high-net-worth individual (UHNWI), they're often defined as those who have $30 million or more in assets. These funds must be in investable assets, which is an important distinction to make.
What is considered high net worth?
Defining HNWI
The closest thing to a standardized definition of an HNWI comes from the Securities and Exchange Commission (SEC), which defines an HNWI as someone with a net worth of at least $2.2 million, or $1.1 million in assets managed by an advisor.
| Position | Years of experience | Total compensation |
|---|---|---|
| Associate | 2-5 years | $59k-75k, median of $68k |
| Service advisor | 3-7 years | $75k-122k, median of $97k |
| Senior planner / lead advisor | 5-10 years | $125k-262k, median of $163k |
| Partner | At least 7 years | $185k-316k, median of $247k |
Not everyone needs a financial advisor, especially since it's an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you're feeling stuck or unsure of how to get there.
What Percentage of Financial Advisors are Successful? 80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.
While 1.5% is on the higher end for financial advisor services, if that's what it takes to get the returns you want then it's not overpaying, so to speak. Staying around 1% for your fee may be standard but it certainly isn't the high end. You need to decide what you're willing to pay for what you're receiving.
