Why do 401(k) Plan Advisors get Paid Comparable to Brain Surgeons?

After doing a bit of research, I learned that brain surgery can cost anywhere between $30,000 and $150,000 and can take between 1 and 12 hours.  On average, it takes about 8 and a half hours.  So if you take the average cost of $90,000 (($30,000 + $150,000)/2), and divide this number by 8 and a half, you get $10,588 per hour.  That’s not a bad day’s work.

As for 401(k) plan advisors, they typically earn anywhere from $1,000 to as much as $100,000 per year per plan, but the vast majority of advisors earn far closer to the lower end.  While some advisors may spend up to 20 hours a year, there are many advisors that literally don’t do anything at all.  So I would estimate that on average, advisors spend about 1 hour a year and earn approximately $3,000.  Granted, a brain surgeon still likely earns more than three times the compensation of a 401k plan advisor, but given what it takes to be  brain surgeon vs. the 4 to 6 weeks of exam preparation it takes to become an advisor, this difference should be much larger.

Furthermore, there are plan administrators who also earn about $3,000 per year per plan, yet they are required to spend far more than 1 hour per year of their time.  So the obvious question is:  How can financial advisors possibly continue to earn so much money while doing little if any work – and without necessarily having any expertise?

The simple answer is that nobody understands or even thinks about how advisors get paid or how the industry works.  But the deeper question is:  Why don’t people understand and think?  I have attempted to answer this question in an earlier post.