Wealth Management Salary and Compensation Structure (2021-2022)
As you no doubt already know, the kind of compensation you can expect to earn in wealth management will be contingent on a number of different factors.
These factors will include whether you've just joined the wealth management industry; are part of a team, work independently, or run your own team; and whether you are at a smaller independent shop, or part of the wealth management division of a large bank (e.g., J.P. Morgan or UBS).
However, while there are many factors that play into overall compensation, that doesn't mean that we can't speak intelligently about what you can expect to earn.
I've personally been surprised by how little information there is online about wealth management salaries and how compensation structures work in the industry. While it varies, there are certain truisms that exist and they are absolutely worth considering before joining the industry.
So, in this post I'm going to try to lay out the general mechanics of compensation in the industry. I'll also provide some examples to show you exactly how to determine compensation as you begin to get clients of your own.
Obviously, I can't speak to how every firm operates or what the exact compensation you should expect at a certain point in your career will be. But hopefully this all sheds a little bit of light on a topic that is far too opaque.
The Salary to Commission Transition
When you first join a wealth management shop - whether it's a small independent shop or a large one tied to an investment bank - you will be given a salary.
However, this salary will not last forever. As a general principle, after roughly three to five years your salary will be wound down to zero and your compensation will be purely derived from the commission you take on the assets under management (AUM) you control or are helping to manage on behalf of another more senior wealth manager.
To be clear, the process by which your salary will be wound down is gradual. Generally what firms try to do is decrease your salary as your commissions increase such that your overall level of compensation is at least flat (but hopefully is actually growing due to the commissions you're making).
Traditionally in wealth management the initial salary that you would earn during your first few years was incredibly small. However, over the past decade attitudes in the industry have evolved. It's now generally recognized that in order to attract top talent competitive salaries and more robust training must be offered.
In my mind, there's a bit of a bifurcation in the wealth management industry when it comes to initial starting salaries.
Large wealth management practices tied to the large banks have raised their salaries to very competitive levels (all-in compensation for first year analysts in 2021 at Goldman Sachs PWM is over $100,000 in the United States, for example).
However, smaller independent shops have raised their salaries much more modestly. This is partly based on the premise that your initial salary doesn't matter too much as you will hopefully be earning much more than the starting salary within a few years (based on your commission earnings).
Because what I know best are the salaries from large investment banks and their wealth management divisions, below is a table illustrating the salaries for analysts and associates located in NYC in 2021 and 2022. These numbers reflect all-in compensation (meaning: signing bonus for first years, salary, and year-end bonuses).
|Wealth Management Title||Average Salary (2021-2022)|
|Analyst (Year One)||$95,000|
|Analyst (Year Two)||$100,000|
|Associate (Year One)||$110,000|
|Associate (Year Two)||$120,000|
As you'd expect, the salaries you can expect from smaller, independent wealth management shops are lower and much more variable. However, as a general principle the salaries will be between 20-50k lower than what is reflected above for the wealth management arms of large investment banks.
As I discussed in the paragraphs above the compensation table, it's not guaranteed that you'll actually be earning just salary beyond your first few years in the wealth management industry. In fact, if things go well, you'll hopefully have a declining salary quite quickly (as that will mean you're making more from "commission" so your firm will begin to wind down your salary.
Commission Structure: Gross Revenue and Grid Payouts
Salary gets you started in the wealth management industry. But at almost all traditional wealth management shops - whether we're talking about independent ones or Goldman Sachs PWM - you'll be off of salary within five years at most (usually much sooner).
Before going any further, it probably makes sense to go over the basics and discuss some terminology here.
As a wealth manager you'll have a book of clients who have given you money. The total amount of money that clients have given you control of is called your assets under management (AUM).
For providing your services as a wealth manager you'll charge a management fee annually. This management fee is applied to your AUM and generally ranges from 50 to 100 basis points (remember that 100 basis points is equal to 1%).
The total amount of AUM under your control, multiplied by the management fee, gets you what's called gross revenue. So, for example, if you manage $100M and charge a 100bps management fee, that brings in gross revenue of $1M annually.
However, don't get too excited yet. The gross revenue you earn as a wealth manager isn't really yours. It will go to the wealth management firm you're affiliated with and you will receive a percentage of the gross revenue.
This percentage of gross revenue that you'll receive is referred to as the "grid payout". As you can imagine, when you're just starting in the industry your grid payout is lower and as you get more senior, and become more valuable to the wealth management shop you're affiliated with, your grid payout will increase.
Of course, the fact that you, as a wealth manager, can't keep all the gross revenue is entirely sensical. There's a lot of overhead, admin expenses, trading fees, market data fees, etc. associated with being a wealth manager that you take advantage of by being affiliated with a wealth management shop. If you don't like your grid payout, you can always leave and go to another shop that will give you a higher percentage payout or go truly independent and start your own shop.
So with the terminology all out of the way, what does this all mean practically?
When you first begin as a wealth manager, you'll not only earn a salary, but you'll also get a 20-30% grid payout typically. So whatever gross revenue you bring in - from clients you've got or been given - you'll get to keep 30% of it.
Once your gross revenue begins to exceed your salary, you'll then typically have your grid payout raised to around 40%, but your salary will begin declining or be taken away entirely.
So theoretically if your gross revenue (for example, $100,000) is roughly similar to your salary, then if your salary is taken away you could end up making less initially (as you'll only earn around 40% of the gross revenue you bring in). However, of course the hope is that as you grow as a wealth manager the amount of AUM you control also grows, which will lead to more gross revenue and more annual compensation for you.
As you become more senior, you have a bit more ability to negotiate your grid payout up and it's not abnormal to see 50-60% grid payouts (or even higher if you're essential to the wealth management shop you're affiliate with).
Here's a little flowchart showing how the terms we just went over flow together. Included is also a little example of what your total annual compensation could be if you had $100M in AUM:
To further illustrate how this compensation structure works and what you could earn, let's play around with some data.
|AUM||Management Fee||Gross Revenue||Grid Payout %||Annual Compensation|
To put this is perspective normally (unless you have support staff and maybe some junior wealth managers below you) you'll have around 100 clients at most. Having any more than 100 clients while operating on your own - with minimal staff directly under you - would be quite a stretch. So while $100M seems like a tremendous amount of AUM to have (because it is!), that does correspond practically to having around 100 clients who have entrusted you with an average of $1M each.
Another thing to keep in mind is that if you're handling hundreds of millions or billions of dollars you probably need a team around you. While your wealth management shop provides technical support and a general platform to you, it will likely fall on you to actually pay people directly if you need dedicated support (this varies depending on the firm you're with). However, the important point is that you may have significant out of pocket expenses that come along with having hundreds of millions in AUM, so your true take home pay may be a bit less than what is indicated above.
Given that you now know the key terminology and formulas that dictate wealth management compensation, you can that a look through an older McKinsey's wealth management compensation survey. Of course, looking at averages is always tough given just how many wealth managers exist and what a wide variance there is in their AUMs. But this will give you a rough idea and show you how compensation is broken down along the lines that we've spoken about in this article.
Well, there you have it. Hopefully this has clarified a bit how wealth managers are compensated -- both when they first begin and as they begin to transition over to having a variable compensation structure.
One thing I didn't touch on is that when wealth managers sell certain types of products to clients (e.g., structured products) they can earn an enhanced commission above their management fee. I didn't discuss that in any detail as not all wealth managers will do that and it will make up a relatively small percent of your overall annual compensation.
Ultimately, the first few years in any job are always going to be difficult. The same is absolutely true with wealth management. You will begin with a reasonable to potentially quite lucrative salary, but then will need to begin producing gross revenue for the firm and quickly your compensation will be entirely dependent on the amount of gross revenue brought in and your grid payout.
If you're interested in joining the wealth management space, or are preparing for interviews coming up, then be sure to check out the long list of wealth management interview questions and answers I've put together. Alternatively, I put together a longer wealth management interview book (containing over 180 wealth management interview questions and answers) that you may find interesting.
Ultimately, the entire rationale for putting this site together is that I believe wealth management is one of the most underrated careers in all of finance. However, there are a lot of misconceptions about it (including around how compensation works) so hopefully this has provided a modest amount of insight.