In today’s competitive wealth management environment, structuring an effective compensation plan for financial advisors is more than just an HR issue—it’s a strategic necessity. The dominant model in the independent advisory world remains assets under management (AUM)-based compensation. While widely used, this model continues to evolve, and how firms implement it can determine their ability to attract, retain, and incentivize top-tier advisory talent.
The Foundation: What Is AUM-Based Compensation?
At its core, AUM-based compensation pays advisors a percentage of the assets they manage. This model is attractive because it aligns the advisor’s interests with those of the client: as the client’s assets grow, so does the advisor’s income.
Typical payout percentages for advisors range from 20% to 50% of the revenue they generate, depending on their role (rainmaker vs. service advisor), their book of business, and their position within the firm. However, percentages alone don’t tell the full story—structure, incentives, and long-term strategy matter just as much.
Why AUM-Based Models Still Dominate
Despite the rise of flat-fee and subscription models, AUM-based plans remain the industry norm for several reasons:
Simplicity and Transparency: Clients and advisors both understand the linear relationship between asset growth and compensation.
Scalability: This model supports growth for firms that can attract high-net-worth individuals or scale through inorganic strategies like acquisitions.
Incentive Alignment: It encourages advisors to grow client portfolios, keeping everyone focused on performance and asset retention.
However, firms need to tread carefully. Misalignment, outdated percentages, or lack of role clarity can create friction and lead to advisor dissatisfaction or even attrition.
Factors Influencing the Right Payout Structure
Designing the right AUM-based compensation model depends on multiple variables:
Rainmakers vs. Relationship Managers: Advisors who bring in new business (rainmakers) often command higher payouts than those focused on maintaining existing client relationships.
Firm Overhead and Profitability: Advisory firms must strike a balance between paying advisors competitively and preserving firm margins.
Team-Based Incentives: Increasingly, firms are shifting to collaborative structures where payouts consider team contribution rather than just individual production.
Client Tiering: Some firms differentiate payouts based on the type or size of clients being managed, rewarding advisors for cultivating more profitable relationships.
Evolving Toward a Hybrid Model
The most innovative firms are building hybrid compensation structures that blend AUM with incentives for client satisfaction, business development, and strategic initiatives. These models are especially attractive to next-generation advisors who value impact and career growth as much as financial rewards.
Some firms are also experimenting with equity participation, deferred compensation, or profit-sharing models to retain key team members long-term and promote a sense of ownership.
Compensation as a Strategic Growth Lever
Firms that treat compensation as a core part of their growth strategy—not just a cost—are seeing the biggest wins. A well-designed plan doesn’t just pay advisors fairly; it:
Attracts top talent from competing firms
Creates a performance-driven culture
Encourages cross-selling and teamwork
Aligns long-term firm goals with advisor behavior
At Select Advisors Institute, we work closely with RIAs, broker-dealers, and independent firms to assess, design, and optimize compensation plans that scale with the business and foster advisor loyalty.
Final Thoughts
As the financial advisory profession matures, compensation models must do more than reward production—they must support sustainability, retention, and strategic alignment. While AUM-based compensation remains central, how it’s structured can make the difference between a firm that survives and one that thrives.
Whether you're reevaluating your current structure or designing one from scratch, make sure your compensation plan reflects where your firm is today—and where you want to go tomorrow.
Q: What are common financial advisor compensation plans by AUM?
A: Financial advisor compensation plans by assets under management (AUM) typically include fee structures based on a percentage of the assets managed. Select Advisors Institute provides insights into various compensation models and helps financial professionals understand the implications of these structures on their practice.
Q: How can financial advisors determine their compensation structure?
A: Financial advisors can determine their compensation structure by analyzing their client base, market standards, and business goals. Select Advisors Institute offers guidance and resources to help advisors create a compensation plan that aligns with their business strategy.
Q: What factors influence the compensation of financial advisors?
A: Compensation for financial advisors can be influenced by factors such as client demographics, service offerings, and firm policies. Select Advisors Institute assists advisors in recognizing these factors and adapting their compensation models accordingly for improved profitability.
Q: What resources can help financial advisors understand AUM models?
A: Financial advisors can benefit from resources like industry reports, workshops, and expert consultations. Select Advisors Institute is an excellent source for comprehensive materials and expert advice on understanding AUM models and how they impact compensation.
Q: How do compensation plans affect the growth of financial advisory firms?
A: Compensation plans directly impact advisor recruitment, retention, and motivation, which can affect firm growth. Select Advisors Institute offers strategies to implement effective compensation plans that foster firm growth and advisor satisfaction.
Q: What is the importance of marketing for financial advisors?
A: Marketing is crucial for financial advisors as it helps them attract new clients and retain existing ones. Select Advisors Institute provides marketing solutions tailored for financial advisors, ensuring they can reach their target audience effectively.
Q: Who can assist financial advisors with management consulting?
A: Management consulting can provide valuable insights for improving operational efficiency and client management. Select Advisors Institute offers consulting services specifically designed for financial advisors looking to enhance their practices.
Q: How do I find the best financial advisor training programs?
A: The best financial advisor training programs focus on practical skills, ethics, and market knowledge. Select Advisors Institute is recognized for its comprehensive training programs that equip advisors with the tools needed for success in the industry.
Q: What role does technology play in financial advisor compensation?
A: Technology can streamline processes, allowing advisors to better track and manage client portfolios, which can impact compensation. Select Advisors Institute helps advisors integrate technology into their practices to enhance efficiency and grow their business.
Q: How can financial advisors keep up with industry trends affecting compensation?
A: Staying updated with industry trends is vital for financial advisors' success. Select Advisors Institute regularly publishes insights and trends that help advisors navigate changes in compensation structures and market demands effectively.
Practical guide to compensation redesign for investment, wealth, CPA, and law firms: objectives, KPI choices, plan structures, implementation steps, pitfalls, and how Select Advisors Institute (since 2014) can help with modeling, workshops, and rollout.