Compensation is both the engine that drives a service-based advisory firm and the issue that keeps firm owners up at night. Everyone wants to pay their people fairly, but what fair looks like depends on your firm’s size, structure, growth goals, and the roles people actually play on your team.
The challenge is that many advisory firms are still running compensation models that were designed for a different era; one where individual production was the primary measure of value and every advisor operated as a standalone business under a shared brand. Those models worked when the industry looked that way. For many firms, the industry no longer does.
In a recent episode of The Fine Print Podcast, David Grau Jr. sat down with Julia Sexton, CVA, who leads SRG’s compensation design, employment agreements, and equity sharing services, to walk through the key decisions that firm owners face when redesigning compensation. This article distills that conversation into a practical guide — organized around the decisions you need to make, in the order you need to make them.
Start with the Data: Know What the Market Is Actually Paying
Before you redesign anything, you need a reliable baseline. Strategy aside, if your compensation is 40% above or below the market for similar roles, you have a problem that no structure can solve.
For years, the industry relied on the Investment News / Moss Adams compensation study as the go-to benchmarking resource. It had an interactive dashboard where you could filter by firm size, region, and role. That resource was eventually shuttered, and while it has returned in a free version, it now pulls from government sources rather than industry-specific survey data — making it significantly less reliable for advisory firms.
SRG developed its Talent Strategy Report (TSR) to fill that gap. Rather than relying on self-reported survey data, the TSR draws from thousands of valuations performed annually — meaning the compensation data has been vetted, reviewed on calls with firm owners, and confirmed for accuracy before it enters the data set. The report covers compensation by role, firm size, and staffing benchmarks so you can see what peers at similar-sized firms are paying and how they are staffing.
A few things worth noting from the data:
- Location matters less than it used to. With remote work now standard at many firms, geographic premiums have compressed. Compensation for the same role is more consistent across regions than it was five years ago.
- Firm size does not create as big a gap as you would expect. A lead advisor at a $3 million firm and a $7 million firm often earn similar total compensation — but for different reasons. Smaller firms tend to pay more per person because each person wears more hats and larger firms requiring more bodies are able to specialize more in each role. So maybe at the core, a larger firm is ‘paying more’ for the core duties of the specific role, but the reality is that smaller firms have similar if not the same tasks and responsibilities, just shared across less people – so we don’t see this changing.
- You should be checking this at least annually. Compensation benchmarking is not a one-time exercise. At minimum, pull updated market data every year — every other year at the outside — to make sure you are staying competitive.
The bottom line: any compensation redesign should start with current, reliable data. If you are working from a study that is three years old or based on a survey with a few hundred respondents, you are building on a shaky foundation.
Choose Your Model: Grid-Based vs. Ensemble Compensation
This is the foundational decision, and it flows directly from a bigger question: what kind of firm are you building?
Grid-based (production-based) compensation assigns each advisor a book of business and pays them a percentage of the revenue they manage — typically 30% to 45%. It is simple, familiar, and effective at incentivizing individual production. It is the model that most of the industry grew up on, originating in the wirehouses and migrating to the independent channel as advisors went out on their own.
Ensemble (team-based) compensation pays advisors a base salary reflective of their role and responsibilities, with variable bonuses tied to specific goals and behaviors, and potentially a share of firm profits. It is designed to incentivize collaboration, specialization, and enterprise value.
The critical insight is that your compensation model will drive behavior whether you intend it to or not. If you pay advisors on individual production, they will optimize for individual production — even if you tell them you want collaboration. You cannot put the incentives in one place and expect behavior in another.
About 95% of the teams we talk to say they want to build a collaborative, team-based firm. Yet many of them are still running a production-based compensation model. If that describes your firm, the structure and the strategy are in conflict, and compensation will win that fight every time.
That said, grid-based compensation is not inherently wrong. If your firm genuinely operates as a collection of individual practitioners under a shared brand — what we sometimes call a “team in name only” — then production-based pay is aligned with that reality. The problems arise when the stated goal is collaboration and scale, but the compensation model still rewards siloed behavior.
Before redesigning anything, be honest with yourself about your firm’s long-term goals and strategy. Are you building an integrated enterprise, or are you running a platform for independent advisors? Either is valid. But the compensation structure needs to match.
The Hidden Cost of Grid-Based Compensation
Even if a grid-based model made sense when your firm was smaller, it can become a serious liability as you grow. Here is the math that tends to catch firm owners off guard.
You assign an advisor 100 households representing $100 million in AUM and $1 million in annual fees. You give them a 30% payout. They earn $300,000. Simple enough.
Fast forward seven or eight years of modest market appreciation. Those same 100 households now generate $1.5 or $2 million in fees. The advisor’s workload has not meaningfully changed — same households, same complexity, same service model. But their compensation has effectively doubled. They are now earning $450,000 to $600,000 to do the same job.
This creates three compounding problems:
- It puts extreme pressure on your margins. As compensation rises with AUM appreciation rather than workload, your profit margin compresses even as revenue grows.
- It creates a cost of goods sold on a service business. Revenue-based payouts function like product costs — dollars off the top before a single operating expense is covered. Most advisory P&Ls do not have a cost of goods sold line. Grid-based compensation effectively creates one.
- It destroys critical economics to build a succession plan. If your top advisor earns a percentage off the top line, they may actually take home more than you as the owner — because you get what is left after expenses. At today’s EBITDA multiples (8x to 10x), every $100,000 in excess compensation that does not reach the bottom line represents $800,000 to $1,000,000 in lost enterprise value. Worse, it makes internal succession nearly impossible: why would a top-earning advisor buy into ownership and trade a simple percentage of top-line revenue for a complex share of bottom-line profits?
And here is the trap: once you are in this model, you cannot easily reduce someone’s payout percentage and keep them motivated and invested. Telling an advisor “the more you manage, the smaller your percentage” is a conversation no one wants to have. The time to address this is before it becomes entrenched — or, if it already is, through a carefully managed transition to a new model.
Farmers and Hunters
Design Compensation Around How People Actually Create Value
Not every advisor creates value the same way, and your compensation model should reflect that. We use two labels to describe the primary roles advisors play on a team:
Farmers are your service advisors. They manage existing client relationships, execute the client service model, handle reviews, and keep clients happy. They are the reason clients stay. Most advisory teams need two or three strong farmers for every hunter.
Hunters are your business developers. They build COI relationships, run prospecting activities, and bring in new clients. They may carry some service responsibilities, but their highest and best use of time is growth. True pure hunters are rare — most have some hybrid responsibilities — but the primary orientation matters.
The compensation structure should differ for each:
For farmers, the majority of compensation comes from a base salary scaled to the assets and households they service. Bonuses represent a smaller portion — roughly 10% to 15% of total comp — and are tied to metrics like client satisfaction scores, net flows, and retention. The emphasis is on stability and quality of service.
For hunters, the base salary is still present (they are valuable team members regardless of any given quarter’s production), but a larger share of compensation — closer to 30% or more — comes from variable bonuses tied to new assets brought in. This creates a direct incentive to do the thing you hired them to do and the thing they are at best at doing.
The key is to avoid defaulting to “everyone is a hybrid” as an excuse to land compensation in the middle. While most advisors do carry some hybrid responsibilities, their primary orientation should determine the compensation design. If you put the incentives squarely in the middle, you are likely to get middling results from both hunting and farming — and both the firm and the individual will be frustrated.
People can change labels over time, and that is fine. A farmer who develops strong business development skills can transition toward a hunter role with adjusted compensation to match. But at any given point, the compensation plan should clearly reflect what you are asking that person to prioritize.
Build in Eligibility Criteria: Bonuses Should Not Be Unconditional
One of the most underused tools in compensation design is eligibility criteria — a set of baseline standards that team members must meet before they become eligible to earn bonuses or variable compensation.
This is not about stretch goals or aspirational targets. It is about the core professional standards you expect every advisor to uphold as a condition of employment. Think of it as the floor, not the ceiling.
Common eligibility criteria may include:
- Adherence to the firm’s pricing policies. If an advisor is discounting fees to close business and earn bonuses, the firm is subsidizing their compensation with margin erosion. Making fee compliance an eligibility requirement stops that behavior without needing a confrontational conversation.
- Completion of required training or development. If you expect advisors to attend two professional development sessions per year, that expectation has teeth when it is tied to bonus eligibility.
- Client satisfaction scores. This is particularly relevant for farming roles. Net flows can be misleading if an advisor’s book skews older and is naturally in a distribution phase. Satisfaction scores measure the quality of service independent of market-driven cash flows.
- Mentoring and leadership. For senior advisors, active engagement in mentoring junior team members can be a criteria that reinforces the collaborative culture you are trying to build.
The power of eligibility criteria is that they create accountability without micromanagement. You are not policing behavior day to day — you are defining what the organization values and tying economic consequences to it. And in the rare case where someone falls short, you have a documented, objective basis for a compensation conversation rather than a subjective judgment call.
Use Compensation to Drive Career Progression and Free Up Capacity
One of the most common complaints we hear from firm owners is that everyone on the team is at capacity and there is no room for growth. The instinct is to hire externally — find a seasoned advisor who can take clients off the founder’s plate. That approach is expensive, slow, and often unsuccessful.
The better path in most cases starts at the bottom. Bring in a younger advisor — maybe a 30-year-old CFP with a small book or no book at all — and use the compensation structure to create a cascade effect. The advisor one level above them pushes their C and D clients down (not out — these are internal referrals, not terminated relationships). That frees capacity for the mid-level advisor to take on larger households, which in turn frees the senior advisor or founder. The whole succession pyramid moves.
But this only works if the compensation model supports it. Under a grid-based model, advisors hoard households because every account — regardless of size — contributes to their revenue-based payout. There is no incentive to let go of 20 small accounts, even if doing so would free time for higher-value work.
The fix is straightforward: reduce or eliminate compensation for household tiers that are below an advisor’s current career level. If a senior lead advisor is still being paid to service $250,000 accounts, they will keep servicing $250,000 accounts. If the compensation on those accounts phases down as the advisor progresses, they will naturally delegate those relationships to the next tier — and their total compensation does not necessarily decrease because they now have capacity for larger, higher-value clients.
This also requires knowing your service capacity — something that a surprising number of firms cannot quantify. How many hours per year does it take to service an A client versus a D client under your firm’s service model? You do not need formal time tracking, but you do need reasonable estimates by client tier. Without that baseline, you cannot meaningfully assess whether your team is actually at capacity or just feels like it. Understanding these dynamics is a core part of the enterprise consulting work we do with growing firms.
Rolling It Out
How to Transition Without Losing Your Team
Even the best-designed compensation plan fails if the team will not adopt it. Change is uncomfortable, and compensation changes are personal. Here is how to manage the transition:
Back-test everything. Before presenting a new model to your team, run every current team member’s actual compensation from the prior year through the new structure. The goal is to understand exactly how each person’s total take-home pay would change. If the output is significantly different, you have levers to adjust — salary bands, bonus thresholds, profit pool percentages — until the new structure produces comparable results for the current year while positioning the firm for better outcomes going forward.
Make the transition invisible where possible. If you did not tell your team the structure had changed, you want the first year to feel like nothing changed. Same take-home pay, different underlying mechanics. The structural benefits — margin expansion, better incentive alignment, scalability — compound over time. You do not need a dramatic year-one shift to get long-term results.
Accept that some legacy arrangements may need to stay. If you have a senior advisor earning $500,000 on a grid-based model, forcing them into a new structure overnight is a retention risk. It may be better to grandfather their current arrangement and apply the new model to all future hires and role changes. Over time, the legacy model phases out naturally.
Be progressive, not abrupt. If someone has been paid a geographic premium or an above-market payout for years, you cannot zero that out in one cycle. Build transition periods into the plan — a year or two where adjustments happen incrementally. This is especially important if you are shifting from production-based to team-based compensation, where the underlying philosophy of how value is measured is changing, not just the numbers.
Pair it with documentation. A new compensation model should be accompanied by updated employment agreements that reflect the new terms. This protects both the firm and the employee, and it reinforces that the change is deliberate, professional, and permanent — not an experiment.
Build For The Long-Term
Where Compensation Meets Ownership/Equity
Compensation redesign does not happen in a vacuum. For many growing firms, the conversation about how to pay people naturally extends into the conversation about how to share ownership — or at least the economics of ownership. Phantom equity programs like stock appreciation rights (SARs) and liquidation rights (LRs) are increasingly being used as a bridge between compensation and true equity partnership.
These programs allow you to give key team members an economic stake in the enterprise value of the firm without transferring voting rights or actual ownership. They serve as both a retention tool and a financial stepping stone — an employee who accumulates phantom equity value over several years will need to borrow less when the time comes to actually buy in as a partner.
If your compensation redesign is part of a broader effort to professionalize your firm, build a career track, and position for long-term succession, equity sharing should be part of that conversation from the start — not an afterthought bolted on later. The entity structure, the operating agreement, the compensation model, and the equity strategy all need to be designed as an integrated system.
The Bottom Line
Compensation is the single most powerful tool you have for shaping behavior, retaining talent, and building enterprise value. But it only works if it is intentionally designed to align with where your firm is going — not where it has been.
The firms that get this right share a few things in common: they benchmark regularly with reliable data, they match their compensation model to their actual business strategy, they use eligibility criteria to reinforce standards, they design for career progression rather than static roles, and they manage transitions with the same care they would bring to a client relationship.
You do not need to overhaul everything at once. But if your compensation model has not been revisited in several years — or if it was never intentionally designed in the first place — the cost of inaction is compounding. Start with a conversation, understand where you stand, and build from there.
