20th June 2024

Rising Financial Planner Salaries - Real or Fake?

Are quoted IFA salaries real?

This is a question we're asked every time one of our salary surveys hits the press.

While many people recognise that the market for financial planners has been rising over the years, plenty of cynics still think recruitment companies make it up.

Our latest salary survey shows that the average financial planner employed in the UK earns a basic salary of £79,591 and a total package of £102,356.

While this will vary by region, we can also give you some information on that. The highest-paying region is London, where the basic salary is £91,250, and the total earnings are £108,950.

So why are people so cynical about market data?

Well, assuming that they're not just doing it for self-interest to prevent their employees from seeking new roles, it probably comes down to the fact that they don't have an overview of the complete market.

There is also the issue that some unscrupulous recruitment consultancies and, potentially, employers were very focused on self-employed roles in the past and had a tendency to hide this in initial discussions, focusing on total income and only admitting they were self-employed with no basic salary once they had a candidate hooked!

I certainly recall the days when IFA business owners rang us up and told us they were offering a choice of employed or self-employed packages. We were quite sceptical about that, but candidates who did attend those types of interviews found that the initial statement offering either employed or self-employed was largely false. The interviewer focused on self-employed and the opportunity and downplayed employed. Of course, they did because they didn't want the outgoings or probably couldn't afford them.

In today's market, many of the larger, growing financial planning businesses are very well funded, often by PE backers.  Love it or hate it, they have real money to pay and will pay significant basic salaries as well as decent on-target bonuses to help their businesses grow. What’s more, they actually supply client banks to work on.

What does this look like?

Well, typically, the companies we work with pay a basic salary more than the average for the area. They'll also provide a client bank, which should be close to covering the basic salary. What this means is that any good financial planner who is hired should be within striking distance of earning a bonus from the outset.

What do Bonus Structures look like?

With regard to bonuses, the ‘validation model’ works well if an Adviser inherits a substantial client bank. This structure states that the Adviser needs to validate their basic salary a pre-agreed number of times before they begin earning bonuses. The validation number is typically 3 x but can vary between 2.5 x and 4 x.

FOR EXAMPLE...

If a Financial Adviser had a basic salary of £80,000, and their bonus was set at validating their basic salary 3 x over, then they would need to write £240,000 total fee income before they started to earn bonus - £80,000 x 3 = £240,000

Once they reach this threshold figure (i.e. £240,000 as per above), then we recommend that the Adviser begins to earn a pre-determined percentage of total fee income.

 The percentage is usually approximately one-third / 33%, but can range between 20% - 40%. You can adopt a tiered structure here, i.e. :-

20% for first £20,000 above threshold

30% for fees between £20,000 - £30,000 above threshold 40% for £30,000+

... or keep it simple  (i.e. 30% for all fees written above target).

 What if the Adviser is inheriting a client bank?

If the adviser is inheriting a client bank that the employer has acquired as part of a business sale, then adopting the above structure may not be commercially viable.

In this case, the financial adviser may receive a different percentage based on the type of income above the threshold.

For example, they may receive 15% of all ongoing advice fees and 30% of initial advice fees above the threshold. This would allow the employer to recoup the value of their investment in acquiring the client bank quicker, ensuring the business remains profitable and can invest in further growth and employee benefits.

When are bonuses usually paid?

Bonus structures are regarded as more attractive if they are paid out regularly – i.e. quarterly, not annually.

If it is quarterly, then the threshold obviously needs to be divided by 4.

(i.e. £240,000 / 4 = £60,000 per quarter).

The Introduction of Behavioural Metrics

It is also important to note that the FCA is clamping down on bonus structures that are focused purely on fee income.

The FCA is putting pressure on Financial Advice firms to introduce behaviour-led metrics that prioritise the client’s best interests and ensure Advisers operate compliantly.

A good way to demonstrate cooperation is for companies to hold back a percentage of the bonus and pay it out annually at the end of the business year based on a balanced scorecard of KPIs.

This can include compliance, CPD, client feedback, testimonials etc.

Salary Reviews

In order to keep Advisers motivated and incentivised to write new business, we would also recommend reviewing basic salaries on an annual basis and increasing it in line with the ongoing revenue of the client bank that they manage.

We recommend 3 ways to do this:

1.       DEPENDING ON THE VALIDATION NUMBER, A PERCENTAGE OF THE ONGOING REVENUE.

For example, if validation number is 3 x, then a salary increase in line with 33% of the ongoing revenue of the client bank.

i.e. If the basic salary is £80,000, and ongoing revenue increases from £240,000 to £255,000, then a pay rise of £4,150 to £84,150 which is 33% of £255,000

2.       A PERCENTAGE OF THE BONUS RECEIVED

For example, 75% of the previous year’s bonus

i.e. if they earned £10,000 bonus, then they would receive a £7,500 pay rise

3.       AT THE LINE MANAGER’S DISCRETION

This could be dependent on the company's budget and/or company performance.

For example, the profitability of the previous year.

Additionally, if the Adviser has taken on additional responsibilities (i.e Management, Pension Transfer Specialist, mentoring etc).

There are numerous types of bonus structures, but the examples outlined above, particularly the validation model, work well when there is a client bank for an Adviser to inherit.

It is also possible to work backwards and offer a basic salary dependent on a client bank's ongoing fee income.  For example, if a client bank generates £240,000, then you can divide it by 3 (or whatever the validation number is) and offer a £80,000 basic salary.

You could pay a higher basic salary, which naturally increases the threshold, to push the Adviser to generate more fee income to ensure they receive a bonus

IN SUMMARY

The question of whether quoted Independent Financial Adviser (IFA) salaries are genuine is a common one, particularly when new salary surveys are released. Despite the recognised upward trend in the financial planner market, scepticism persists. Cynicism often arises from a lack of comprehensive market understanding or past experiences with deceptive recruitment practices, where self-employed roles were misrepresented. However, today's financial planning landscape has evolved, with well-funded firms, often backed by private equity, offering substantial salaries and bonuses, along with client banks to work on.

Bonus structures typically involve validating the basic salary multiple times before earning bonuses, which can be a third of the fee income above the threshold. Inherited client banks may lead to different percentage-based earnings on initial and ongoing advice fees. Regular bonus payouts, the inclusion of behavioural metrics, and annual salary reviews aligned with ongoing revenue are recommended to keep advisers motivated and compliant. These practices ensure that salary data reflects real market conditions, providing financial planners with clear and achievable compensation structures.

If you're not sure about this, don't take our word for it, give me a call and I'll explain more – 07768 952212 

If you would like to know more about our M&A, Recruitment and Consultancy  Services, feel free to personal message me or contact me via our website, where you can book a call at www.paulharpersearch.co.uk

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