How are Financial Advisors Compensated for Their Services?

How are financial advisors compensated? It’s one of the most common and crucial questions anyone entering the industry should ask. After all, a firm’s compensation model doesn’t just dictate your paycheck; it determines your professional autonomy and long-term wealth-building potential.

In today’s advisory landscape, most financial professionals operate under one of two models: wirehouses or independent firms. Both business models offer access to investment products, compliance support, and technology platforms. However, they differ greatly in terms of payouts, tax treatment, and true earning potential.

Below, we’ll examine how financial advisors are compensated in each business model and share some real-world payout examples from top wirehouse firms. We’ll also explain why independent advisors often enjoy dramatically higher take-home pay.

Financial Advisor Compensation: Wirehouses vs. RIAs / Broker-Dealers

Before diving into specific payout comparisons, it’s important to understand the two main business models that shape how financial advisors are paid today:

• Wirehouses are large, full-service brokerage firms, such as Merrill Lynch, Morgan Stanley, and Wells Fargo. These firms provide strong brand recognition, office infrastructure, and access to proprietary investment products. Despite these advantages, wirehouse advisors are bound by strict corporate policies, limited product menus, and predetermined payout grids that restrict their independence and earning potential.
• Independent firms, such as Registered Investment Advisors (RIAs) and hybrid RIA/broker-dealer models like Alden Investment Group, function very differently. These firms allow their advisors to operate as business owners, rather than employees. Independent advisors have more autonomy, offer a broader range of investment solutions, and keep a significantly larger share of their revenue while still benefiting from professional support and compliance oversight.

Learn More: Wirehouse vs. Broker Dealer / RIA: Which Model Fits You?

Financial Advisor Compensation Structures

Regardless of their firm type, most advisors earn their income through a combination of the following methods:

• Commissions – Many advisors receive a percentage of the investment or insurance products they sell to their clients.
• Fees – Some advisors charge their clients fees for portfolio management or financial planning services. Their fees are typically structured as a percentage of assets under management (AUM), though they can also take the form of hourly rates or fixed fees.
• Salary and bonuses – Some advisors earn a base salary supplemented by performance-based bonuses. This pay structure is most common for entry-level advisors at large institutions.

Learn More: Financial Advisor Fee Structures: Comparing Flat Fee and AUM

How Are Wirehouse Advisors Compensated?

Wirehouse firms typically use a payout grid, which is a tiered structure that determines what percentage of an advisor’s gross revenue they retain. Most advisors only keep 34% to 51% of what they produce. The remainder goes toward covering their firm’s overhead costs (office space, staff, technology, etc.) and contributing to corporate profits.

Payout grids reward higher-producing advisors with larger payout percentages. However, advisors managing “small household” accounts (typically under $250K to $500K) often receive little to no payout, a policy designed to steer them toward pursuing higher-net-worth clients.

Additionally, wirehouse advisors often face the following:

• Deferral programs that withhold a portion of an advisor’s compensation for several years as a retention incentive.
• Limited tax flexibility since W-2 advisors can’t deduct ordinary business expenses, such as marketing, travel, or client entertainment.
• Corporate quotas for banking, lending, or cross-selling programs that often shift advisors’ focus to firm objectives, as opposed to their clients’ true needs.

As you can see, while the wirehouse model provides valuable structure, brand recognition, and resources, it does so at a significant cost.

Learn More: How to Attract Wealthy Clients: 11 Financial Advisor Strategies

Wirehouse Payout Grids: Merrill Lynch, Morgan Stanley, Wells Fargo, Fidelity, & Schwab

While most wirehouses share a similar compensation framework, specific payout grids and policies vary significantly across firms. Here are the latest payout structures and thresholds for several leading wirehouse institutions:

How are Merrill Lynch Advisors Compensated?

Merrill Lynch recently increased its “small household” threshold from $250,000 to $500,000 for 2026. Under this new compensation structure, advisors earn a 20% payout on accounts between $250,000 and $500,000, and no payout at all for clients below $250K. Accounts above $500,000 receive standard grid rates, which range between 34% and 51%.

How are Morgan Stanley Financial Advisors Compensated?

Morgan Stanley’s 2026 payout grid ranges from 28% to 55.5%, depending on an advisor’s production level. The firm has announced plans to reduce its deferred-compensation rates by 50% in 2026, allowing advisors to take home more of their earnings. However, it also raised its “small household” threshold from $250,000 to $300,000, eliminating payouts on accounts that fall below that balance.

How are Wells Fargo Advisors Compensated?

Wells Fargo pays its advisors on a 22% to 50% payout grid, depending on their monthly production. As of 2025, the firm raised its “small household” threshold from $100,000 to $250,000 in assets. Accounts below that level now earn just a 10% payout—half of the 20% rate advisors previously received on those relationships.

Wells Fargo advisors must also generate at least $330,000 in annual revenue to avoid discounted pay rates. In addition, the firm recently introduced a $500 cash bonus for each client who opens a new checking account, further linking advisor compensation to bank product sales.

How are Fidelity Advisors Compensated?

Fidelity compensates its advisors with a fixed salary plus variable pay, rather than a production-based payout grid. Advisors’ base salary typically accounts for 20% to 45% of their total compensation.

Their variable pay is tied to key performance metrics, such as client retention, financial planning activity, investment engagement, and overall client satisfaction. Top-performing advisors may also qualify for annual bonuses and long-term incentives.

How are Edward Jones Advisors Compensated?

Edward Jones compensates its financial advisors through a combination of commissions, asset-based fees, and performance bonuses. Its core payouts typically range from 36% to 40% of gross revenue, though total compensation can reach up to 50% after factoring in profit sharing, trimester bonuses, and incentive travel awards.

Newer advisors receive a base salary and supplemental income for up to five years as they build their client base, while experienced advisors may qualify for transition packages, new-asset bonuses, and profit-sharing contributions based on branch performance.

Each Edward Jones advisor operates their own branch office and receives a profit and loss statement, giving them a direct financial stake in their branch’s profitability.

How are Schwab Advisors Compensated?

Charles Schwab compensates its financial advisors with a fixed salary plus incentives. Advisors earn variable “Relationship Pay” and “Solutions Pay” based on their assets under management, new client acquisition, and client engagement.

• Relationship Pay provides advisors with ongoing compensation tied to their client account balances and service complexity.
• Solutions Pay offers advisors one-time incentives for bringing in new assets or enrolling clients in Schwab’s advisory programs.

As you can see, wirehouse advisors often fork over a hefty portion of the revenue they generate. What’s more, they must align their advisory approach with their firm’s incentive structures to optimize their earnings, potentially putting corporate priorities ahead of their client preferences.

Learn More: How to Revolutionize Your Client Experience with TAMP Investment Software

The Hidden Cost of Being a W-2 Advisor

Limited payouts aren’t the only reason wirehouse advisors often earn less than their independent counterparts. Another factor is their W-2 employee classification, which restricts their ability to deduct business-related expenses on their tax returns.

This issue made headlines in 2025 when former Wells Fargo Advisors representative Francisco Gil took the IRS to court. Gil had filed his 2020 and 2021 tax returns as an independent contractor, claiming more than $186,000 in business deductions for:

• Marketing expenses
• Travel expenses
• Vehicle depreciation
• Legal fees

The IRS rejected Gil’s filing and issued him a $5,000 penalty. In his ruling, U.S. District Judge Gerald McHugh confirmed that wirehouse advisors like Gil are employees—not entrepreneurs—and therefore ineligible for such write-offs.

Gil’s case illustrates a common frustration among W-2 advisors. They often pay out of pocket for client dinners, travel, and marketing, but they can’t deduct those costs at tax time. Over the years, those lost deductions can add up to tens of thousands of dollars in missed savings, further widening the gap between W-2 employees and independent 1099 advisors.

When wirehouse advisors recognize how restrictive their W-2 status can be, it often sparks a turning point in their careers. For example, Gil left Wells Fargo in 2024 to join Raymond James’ independent channel in pursuit of more freedom and greater ownership of his earnings.

Learn More: Why Financial Advisors Are Leaving Their Wirehouses to be RIAs

How Independent Advisors Are Compensated (and Why They Often Earn More)

When wirehouse advisors go independent, the change in compensation can be transformative. Independent financial advisors affiliated with RIAs or hybrid firms operate as true entrepreneurs, retaining a substantially greater share of their revenue—typically 70% to 90%, depending on the level of support and infrastructure their firm provides.

Independent advisors also enjoy complete control over how they charge for their services. They can choose the compensation model that best aligns with their goals, whether that’s AUM-based fees, flat fees, retainers, hourly consulting rates, or subscription models.

Most importantly, independence enables advisors to build equity in their own business. They can sell their practice when they retire, transforming years of hard work into long-term wealth and a lasting professional legacy.

Learn More: Measuring Your Book of Business as a Financial Advisor

Independent Advisors’ 1099 Tax Advantages

Independent advisors earn 1099 income, allowing them to deduct legitimate business expenses directly from their gross revenue. These deductions can include common operational costs, such as:

• Marketing and advertising expenses
• Client dinners and events
• Travel to conferences or meetings
• Technology, software, and office equipment
• Professional dues, insurance, and continuing education

Over time, these business deductions can have a significant impact on advisors’ annual earnings, helping them keep more of what they earn while fueling their future business expansion.

Enjoy the Perks of Independence With Alden Investment Group

At Alden Investment Group, our goal is to make independence achievable and financially compelling. As an RIA and broker-dealer, we blend the freedom and flexibility of independence with the structure, resources, and support of a full-service firm.

Our advisors pay modest monthly fees to enjoy everything most major wirehouses bundle into their steep overhead expenses, including:

• A full-stack technology platform with robust IT support
• Compliance oversight and registration
• Cybersecurity insurance and monitoring
• FINRA/SEC-mandated supervision
• Email monitoring and 24/7 help desk support

Even after these platform fees, Alden advisors consistently retain roughly double what their wirehouse peers take home. And with no “small household” thresholds, you’ll receive a consistent share of your hard-earned revenue, whether your clients are worth $50,000 or $5 million.

Beyond Compensation: The Freedom to Build Your Own Practice

Higher payouts are just one benefit of going independent. You also gain the freedom to run your business your way and build lasting equity in your practice. And luckily, making the transition is easy with Alden Investment Group’s support.

Our turnkey platform provides:

• Book ownership, allowing you to maintain full control of your client relationships, revenue streams, and business equity.
• Cutting-edge technology, including access to Alden COVE, our comprehensive turnkey asset management platform (TAMP) that simplifies portfolio management, reporting, compliance, and client communication.
• Comprehensive back-office support from our seasoned transition and operations teams, who can handle your compliance, administration, and account transfers.
• Equity opportunities as you participate in Alden’s broader growth and unlock long-term partnership rewards.
• Succession and continuity planning from our succession specialists, so you can protect your client relationships and bolster your practice’s value as you plan your eventual exit or retirement.

With our team managing your infrastructure and oversight, you can focus on what truly matters: serving your clients and growing your business.

Learn More: 6 Steps to Effective Succession Planning for Financial Advisors

The Bottom Line: Independence Pays Dividends

To sum it up, let’s return to the question, “How are financial advisors compensated for their services?” As you now know, the answer ultimately depends on where and how they choose to build their business.

Wirehouse firms may offer brand prestige and steady paychecks, but they come with considerable trade-offs, including lower payouts, limited flexibility, and costly tax restrictions. In contrast, independent advisors retain the majority of their revenue, enjoy greater flexibility, and gain the freedom to build lasting equity in their own practice.

If you’re ready to take control of your compensation, Alden Investment Group can help you make the move with confidence. Contact our team to explore how our independent model can help you unlock your full earning potential today!

Sources:

AdvisorHub. 2026 COMP: Merrill Lynch Doubles ‘Small Household’ Threshold to $500K.
https://www.advisorhub.com/2026-comp-merrill-lynch-doubles-small-household-threshold-to-500k/

AdvisorHub. 2026 COMP: Morgan Stanley Reworks Deferred Comp, Boosting Advisors’ Take-Home Pay.
https://www.advisorhub.com/2026-comp-morgan-stanley-reworks-deferred-comp-boosting-advisors-take-home-pay/

AdvisorHub. 2025 COMP: Wells Leaves Grid Unchanged, Tightens Small Household, Penalty Box Policies.
https://www.advisorhub.com/2025-comp-wells-leaves-grid-unchanged-tightens-small-household-penalty-box-policies/

Fidelity. Compensation Disclosure.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/representative-compensation.pdf

Edward Jones. Competitive, transparent — and driven by you.
https://careers.edwardjones.com/career-areas/experienced-financial-advisor/compensation-and-benefits/?codes=SEARCH&utm_source=SEARCH

Charles Schwab. How We Compensate Our Investment Professionals.
https://www.schwab.com/public/file/P-6560610/REG31752-45_HowWeCompensateOurInvestmentProfessionals_Final.pdf

Financial Advisor IQ. Judge Foils W-2 FA’s Bid to Write Off Business Expenses.
https://www.financialadvisoriq.com/c/4988294/692264/judge_foils_write_business_expenses?