Authors
Julia Sexton, CVA, Director of Strategic Organizational Planning
Julia Sexton is the Director of Strategic Organizational Planning at Succession Resource Group, where she leads the firm's compensation design, equity sharing, employment agreement, talent strategy, and contingency planning work. A Certified Valuation Analyst (CVA) since 2019, Julia brings more than eight years of experience advising financial advisory, accounting, and insurance practices. In that time she has completed thousands of valuations and supported over 200 successful mergers.
"Firms rely on an outdated playbook."
Most advisory firms still pay advisors on decades-old revenue-based models designed for solo producers, not the integrated teams they are building today. That mismatch is compressing margins, stalling succession plans, and destroying enterprise value. A modern framework built around base salary, targeted bonuses, and profit participation aligns incentives with the business you are trying to build.
Why Is Advisor Compensation Broken at So Many Firms?
Growing teams, rising M&A activity, and continued industry consolidation are reshaping independent wealth management. Scale, next-generation advisors, growth, and enterprise value are now the industry’s central conversation. As professional service businesses, client-facing advisors are central to delivering on those objectives, making advisor compensation more important than ever.
Firms are trying to balance profitable growth and increasing enterprise value with the need to retain and attract talent through competitive compensation. Over- or under-compensating advisors, or misaligning incentives, can have long-term consequences that quietly undermine margins, culture, and value.
The core problem is straightforward: teams, roles, and growth strategies have evolved faster than the compensation models behind them. Drawing on more than 2,000 firm valuations, with compensation data covering tens of thousands of professionals, SRG compensation specialists are seeing more advisors form and grow true teams. Not just loose groups sharing back-office costs, but integrated firms with unified service models, investment strategies, and operations. At the same time, this research shows that most firms are still compensating advisors using models that have remained largely unchanged for decades.
In roughly 95% of the teams that SRG works with, the stated goal is to create collaboration and work as a team within an ensemble structure. Yet the compensation model still rewards individual production. That gap between what firms say they want (efficiency, growth, and continuity) and how they pay advisors continues to widen. The result is margin compression, confused career paths, frustrated owners, and suppressed enterprise value.
How Does the Traditional Revenue-Based Model Work?
The most common approach, across independent RIAs and dually registered teams alike, is to pay advisors a “salary” that is calculated as a direct percentage of the revenue or AUM they service. Advisors are typically paid anywhere from 30% to 90% of revenue, depending on the support received, and are responsible for sourcing and servicing their own clients.
This model works well for its original purpose: rewarding advisors focused on building and servicing their own books of business. These are the “hunters.” If they grow, they earn more. If they don’t, compensation adjusts accordingly. It is a clean model: recruit producers, provide infrastructure, and share in the upside. Advisors who thrive here value autonomy and unlimited upside in exchange for risk.
The revenue-based model originated decades ago in wirehouses and banks, where advisors received a 30% to 40% payout and the house provided the office, desk, and clients. When advisors went independent, the structure came with them, only the payout jumped to 80% or 90%. The mechanics stayed the same: pay for production.
That structure still has a place. But it was designed for a world of solo practitioners building individual books, not for the ensemble firms dominating the industry today.
What Happens When You Pay Farmers Like Hunters?
Where the traditional model breaks down is in growing firms that are no longer hiring hunters but instead are recruiting and training younger professionals to service assigned client households. These are the “farmers.” They are hired to create capacity, deliver a standardized service model, and support firm-level growth, not to source business independently.
Paying farmers the same way hunters are paid creates increasing tension for firm owners, as compensation grows rapidly over time without a corresponding increase in workload or responsibility.
Consider a simple example. An advisor is hired at $250,000 plus modest bonuses to service 100 households representing $100 million in AUM. Seven years later, that advisor is still servicing those same 100 households. Market appreciation has doubled the assets and fees, but not the scope of work. The advisor’s compensation is now $500,000 for effectively the same role.The math gets worse at scale. If an advisor is assigned 100 households, each with $1 million in investable assets at a fee of 100 basis points, they are managing $100 million in AUM, or $1 million in annual fees, with a salary of 50%, or $500,000 annually. Ten years later, the markets have done reasonably well, and the advisor has not lost any clients. The firm is now paying that advisor $1 million annually to do effectively the same job and take care of the same 100 households. For most RIAs, this is simply unsustainable.
Margin Compression and Owner Pay Inversion
You cannot build a scalable ensemble using a compensation system designed to reward individual autonomy and production. Revenue-based payouts become the equivalent of a cost of goods sold on the P&L, taking dollars right off the top before the firm even starts the day. What makes this especially painful is that in many cases, the top advisors end up making more than the business owner. The owner may earn the highest total, but they always get paid last, after all operating expenses. Convincing an advisor who takes a percentage off the top line to buy in and trade that for a percentage of the bottom line is one of the hardest conversations in succession planning.
Good luck convincing your highest-paid team member to reduce their guaranteed percentage so they can become an owner and take on more risk. That is the trap revenue-based compensation creates for internal succession plans.
What Is the Base, Bonus, Profit (B.B.P.) Compensation Model?
B.B.P. stands for Base, Bonus, and Profit. It is SRG’s proprietary compensation framework, derived from the largest and most successful advisory firms in the industry and tested and proven to help attract and retain talent more successfully and efficiently than the traditional production-based model. The model incentivizes the right behaviors while maintaining a team focus.
The framework has three components, each calibrated differently depending on whether the advisor’s primary role is servicing clients (farmer), developing new business (hunter), or leading at the partner level.
Base Compensation
Base pay reflects the size and complexity of the client relationships serviced, often with an additional component for managerial or operational responsibilities. For farmers, base compensation is structured as a fixed salary or a salary scaled on the AUM they service. For hunters, the fixed salary is lower, with a greater share of total compensation coming from variable components. For partners, base pay is tied to the duties and responsibilities of the leadership role.
Bonus
Growth incentives remain in the model, but they are role-appropriate and tied to firm priorities rather than purely individual production.
For farmers, bonuses are typically 10% to 15% of first-year revenue from positive net flows. The focus is on retention, client satisfaction, and service quality, not new business development. If a farmer’s clients are growing through organic contributions and staying happy, the farmer earns more.
For hunters, bonuses jump to 20% to 30% of first-year revenue from new clients. The measurement shifts to new assets brought in, not net flows. The incentive is targeted: go find new business and hand it off to the best servicers on the team.
For partners, the bonus structure mirrors the hunter model (20% to 30% of first-year revenue from new clients) while also incorporating broader leadership and firm-building incentives.
The critical addition that SRG builds into most compensation plans is eligibility criteria, one of the best practices for creating an effective compensation plan. Before an advisor qualifies for bonus compensation, they must meet baseline standards: following the company’s fee schedule, maintaining client satisfaction scores, completing required training, and meeting performance review benchmarks. These criteria prevent situations where advisors chase bonuses by discounting fees or cutting corners on service.
Profit Participation
The profit component, structured as a long-term incentive plan (LTIP), equity sharing, or a direct share of net income, rewards advisors when the firm performs well overall. For farmers, this typically takes the form of an LTIP. For hunters, it can include LTIP and equity participation. For partners, profit sharing is tied directly to net income.
This approach scales with the business, aligns incentives, and supports margin expansion rather than contraction. Advisors gain stability, clarity, and career progression. Firms gain consistent service delivery, predictable margins, and leadership teams freed from day-to-day client work.
How Do You Benchmark Advisor Compensation?
Strategy aside, firms still need to keep a pulse on the market. Even the best-designed compensation framework creates problems if it pays 40% more than the rest of the industry, or 40% less. You want to hire good people and keep them, which means compensation needs to be competitive alongside being structurally sound.
The Benchmarking Problem
For the longest time, the industry relied on the InvestmentNews/Moss Adams compensation study as the go-to resource. Advisors had access to an interactive dashboard where they could slice data by firm size, location, and role. But the sample sizes shrank, then the sample size indicators disappeared entirely, and eventually the study was shuttered altogether.
The replacement is free and pulls from government sources, but as SRG President David Grau Jr. has noted, “right now, it’s worth about what you pay for it, which is nothing.” Government data lacks the specificity and vetting that advisory firms need for serious compensation decisions.
Survey data in general carries risk. When advisors fill out compensation surveys, they are making their best guess. Some may reference their P&L, some may not. Some may give rounded-off figures. There is no fact-checking layer. SRG’s valuation process, by contrast, vets compensation data through a detailed review call where figures are confirmed for accuracy before being used in any analysis.
SRG's Talent Strategy Report (TSR)
The Talent Strategy Report was developed by SRG to fill the gap left by the loss of reliable industry compensation data. The TSR draws from more than 2,600 firm valuations and over 8,000 individual compensation records, covering 20-plus roles across advisory firms of all sizes.
Unlike survey-based studies, this data comes directly from the valuation process, where firms have a financial incentive to provide accurate information and SRG’s team reviews the data for consistency before it enters the dataset. The TSR provides detailed compensation benchmarks by firm size, role, and structure, along with staffing data that shows what firms at different revenue tiers look like in terms of team composition.
The TSR provides firm owners with current, reliable data they can use as a foundation for compensation design and workforce planning.
How Should Firms Roll Out Compensation Changes?
The best compensation model in the world fails if you cannot get your team to adopt it. Adoption is not just about the structure; it is about the transition.
Back-Testing
Before presenting any changes to the team, SRG runs a rigorous back-testing process. This means taking the new compensation structure and applying it retroactively to see what each team member would have earned under the new model, assuming the same role and responsibilities.
The goal is simple: if you did not tell advisors that there was a change in compensation or the structure behind it, you want it to feel like there is no change. At least not initially. The back-test identifies where the new model produces results that are close to what the advisor earned in the prior year, and where adjustments need to be made.
Progressive Transitions
Compensation changes should be progressive, not abrupt. For a deeper look at the transition process, see SRG’s guide on how to redesign compensation at your advisory firm. If someone has historically been paid above market because of a geographical premium, a legacy deal, or simple inertia, that premium cannot just disappear in one year. SRG calibrates the model to create a gradual transition, adjusting levers across the base, bonus, and profit buckets so that the shift is manageable.
For most teams, this means the majority of advisors move to the new structure relatively smoothly. In cases where specific individuals are significantly overpaid relative to the new model (typically because of legacy production-based arrangements), those individuals may stay on a “legacy model” while the new framework applies to the rest of the team and all future hires.
Career Pathing and Capacity Planning
A well-designed compensation model also addresses career progression. As advisors move up through the firm, the minimum complexity and value of the clients they service should increase. This prevents hoarding, where senior advisors hold onto small, low-effort accounts simply because those accounts contribute to their revenue-based payout.
Under the B.B.P. model, as advisors advance, they are expected to push smaller relationships down to more junior team members, creating capacity for higher-value work. Compensation is scaled to reflect this progression, so advisors are rewarded for moving up rather than penalized for letting go of lower-tier accounts.
SRG’s capacity planning process maps out what different client tiers require in terms of time, then determines how many households at each level an advisor at a given career stage should reasonably manage. This creates the foundation for both compensation scaling and hiring decisions.
How Does Compensation Affect Enterprise Value?
Compensation is not just an HR function. It is one of the most significant drivers of enterprise value in an advisory firm.
Revenue-based payouts create what is effectively a cost of goods sold on the P&L. In a typical service business, there is no COGS line, because you are not selling inventory. But a grid-based payout that takes 40% to 60% off the top before any other expenses are covered functions exactly like one.
The valuation math makes the impact stark. If today’s multiples of earnings are in the range of eight to ten times (or higher in some cases), every dollar of excess compensation that does not reach the bottom line is multiplied at that rate. Pull $100,000 in excess comp off the top, and at an 8x to 10x multiple, that is $800,000 to $1 million in lost enterprise value. Pull $300,000, and the impact reaches $2.4 million to $3 million.
For firm owners thinking about succession planning, whether through an internal buyout or an external sale, compensation structure is not something to address later. It is foundational. The right model creates margin expansion over time, even for firms that are currently paying above market. The wrong model, left in place, compounds the problem every year as markets appreciate and revenue-based payouts grow without corresponding increases in workload.
Not every advisor is a hunter, and in an ensemble, they do not need to be to have a meaningful impact. For every successful hunter (including the founder), firms typically need two to three farmers to manage and support the work. With a looming talent shortage in financial planning, as reported by Financial Planning, evolved roles and compensation models will be critical for attracting the next generation of advisors into the profession.
Frequently Asked Questions
Is revenue-based compensation ever appropriate?
Yes. The traditional revenue-based model remains appropriate when advisors are responsible for sourcing and servicing their own clients and the firm operates as a collection of individual practices rather than an integrated team. Advisors in this structure value autonomy and unlimited upside in exchange for risk, and the model rewards that cleanly.
What is the difference between a hunter and a farmer?
A hunter is an advisor whose primary role is business development, bringing in new clients and revenue. A farmer is an advisor whose primary role is servicing assigned client relationships, delivering the firm’s client experience, and retaining assets. Most advisors are some degree of hybrid, but compensation should be weighted toward their primary function. Labeling everyone as a hybrid and landing their compensation in the middle tends to frustrate both the firm and the advisor.
How much does compensation design cost?
SRG’s Compensation Design service is $7,500 per role and takes approximately 45 business days. The process includes benchmarking against SRG’s proprietary data, model calibration, back-testing, and a compensation plan document ready for implementation.
How do I know if my firm is overpaying or underpaying advisors?
SRG’s Talent Strategy Report (TSR) provides benchmarking data drawn from more than 2,600 valuations and over 8,000 compensation records across 20-plus roles. The TSR is available for $80 per month, giving owners a reliable baseline for evaluating their current compensation against the market.
Can I implement B.B.P. without disrupting my current team?
Yes. SRG’s back-testing process is specifically designed to make the transition feel seamless. The new structure is calibrated so that total compensation under the new model closely matches what advisors earned in the prior year, with progressive adjustments built in over time. Legacy arrangements for specific individuals can be maintained while the new framework applies to the broader team and all future hires.
How does compensation design relate to succession planning?
Compensation structure directly affects whether internal succession is viable. If advisors are paid a high percentage off the top line, they have little incentive to buy into the firm and trade that guaranteed payout for a share of the bottom line. Restructuring compensation to include profit participation and equity components, such as phantom equity, creates alignment between the advisor’s financial interests and the firm’s long-term value.
The bottom line is simple: advisor compensation is strategy, not an afterthought. It shapes behavior, reinforces culture, and materially impacts enterprise value. For some firms, the team is right and the compensation is not. For others, roles and structure need to be realigned before compensation can follow.
Align compensation with the business you want to build, not the one you started with. The return on getting this right is real, even when it is hard to measure, and it only gets harder to unwind the longer an outdated model stays in place.
Considering a compensation redesign? Contact SRG to learn how our Compensation Design service and Talent Strategy Report can help you build a compensation model that scales with your firm. Email sales@successionresourcegroup.com or call (503) 427-9910.
