Compensation of Investment Advisors

From an agency standpoint, we show that firms trade client focus for firm success. As a firm grows, more clients are distributed to fewer advisors compared to smaller firms, which have the potential to offer more individualized attention. Although past research has acknowledged the existence of agency problems in the investment advisor relationship, not one has looked at the underlying compensation arrangements of actual firms. Overall, we provide an in-depth analysis of the compensation agreements investment advisors provide and how these can be affected by different firm characteristics.