Payout grids play an outsized role in determining how much of an advisor’s time and attention a client is going to get.There has been increasing attention among investors in recent years on the fees they pay for financial advice. What this singular focus misses is any discussion of how much of those fees end up in their financial advisors’ hands.
Bank-owned brokerages provide the highest amount of support and brand recognition, but also take the largest cut of the advisor’s top-line revenue – from 49 per cent up to 72 per cent. At high-grid independents, the advisor grid tops out at about 60 per cent of revenue. While not all advisors’ costs are covered, the more generous grid structure at larger independent dealers means advisors’ EBOC is similar to bank-owned brokerage levels, if not slightly better.
In return for this higher payout, advisors must run virtually all aspects of their own practices. But the economics remain more favourable, with EBOC averaging closer to 50 per cent. The most efficient practices can push their EBOC levels to 70 per cent or more.Let's consider a client who has $500,000 to invest and is looking for a new advisor. She finds four advisors with similar service offerings who meet her needs.
From advisors’ perspective, payout grids impact the structure of their business. To achieve similar EBOC levels, advisors at high-grid dealers need to manage significantly more assets than advisors at low-grid dealers. That means significantly more clients. This dynamic then creates a client-servicing issue for advisors on a high grid: the more clients they have, the fewer hours they can spend on and with each client.
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