According to new independent registered investment advisor (RIA) compensation data from Schwab Advisor Services, there are three major tenets to attracting and retaining quality employees across all levels at RIA firms: aligning compensation plans with business strategies, incorporating more than just base salary into compensation plans, and creating a path to equity partnership for key employees.
Compensation accounts for approximately three-quarters of firms’ total expenses, therefore a strategic and competitive compensation structure is vital to help firms grow and remain competitive. To help advisors better understand the landscape and structure plans that align with their business goals, Schwab incorporated compensation questions into the 2014 RIA Benchmarking Study. The resulting data represents the largest study of its kind in the RIA industry with responses from nearly 900 firms, representing nearly 8,000 jobs across 21 roles typically found at RIA firms.
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"We know from this year’s Benchmarking Study that more than one-third of participating firms doubled their assets under management (AUM) and revenues since 2009, which shows remarkable growth and illustrates the strength and maturation of the RIA model," says Nick Georgis, vice president, Schwab Advisor Services. "With this growth we see increasing competition for talent. In fact, 50 percent of new hires in 2013 left one RIA firm to join another. It’s therefore vitally important for firms to develop well-planned and cost-effective ways to incentivize top-tier employees to join and remain in their ranks. The most successful firms are doing this by establishing operational discipline to manage the growth of their business, and part of that discipline includes sharpening their compensation philosophies."
Three key strategies for attracting and retaining top talent at an RIA firm include:
Connecting compensation to business strategy
High-performing firms excel at designing compensation plans that align with business strategy. By linking compensation to performance goals, employees are more likely to be motivated to strive for increased productivity and greater firm-wide profits. Regular performance evaluations can be used to reinforce goals, track career development, and reconfirm that compensation plans are aligned with the firm’s strategic goals.
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By GlobalDataOffering compensation beyond base salary
While base salary is expected for job performance, attractive compensation plans include additional incentives such as benefits packages, non-cash compensation, and a formal path to partnership, which link a firm’s strategic goals with employee behavior. Schwab’s compensation data showed that base salary accounted for 88 percent of total cash compensation in 2013, but more than nine out of ten (91%) employees received a form of incentive compensation. Medical insurance is offered by 80 percent of firms, while 46 percent of firms in the Study provide employees with dental insurance. Other benefits, such as long-term disability and fully paid maternity/paternity leave, are also provided by nearly half of firms.
Integrating key employees into the ownership or partnership structure
Creating a path to ownership is viewed in many firms as essential to establishing a sustainable business. By expanding the number of equity partners, RIA founders and principals share the responsibilities for the health of the business, which often leads to greater long-term growth. The data illustrates that larger firms are more inclined to develop a formal path to partnership. In 2013, nearly a third (32%) of firms with over $1 billion in assets added new equity owners, while only 8% of firms under $250 million in assets added new owners.
"Talent management is an essential focus for firms, especially as founders and principals look to develop the next generation of leaders and build enduring enterprises," said Georgis. "Competitive and comprehensive compensation packages, along with clear paths to partnership help ensure retention of employees within a highly competitive talent environment, setting up firms for success now and into the future."
