RIAs need to offer more than pay to win talent

February 1, 2022 Lisa Salvi
See how independent advisors are evolving (and managing) their compensation and talent strategies in today’s competitive environment.

According to research in Schwab’s 2021 RIA Compensation Report, an addendum to the 2021 RIA Benchmarking Study, people continue to be the largest investment for RIAs, averaging 71% of a firm’s overall expenses.i  

This probably isn’t surprising information to independent advisors who have built their businesses by putting people first. But while that core concept hasn’t changed, what has changed is the labor market.

New expectations

The life-changing pandemic we’ve been experiencing has caused many people to reevaluate their priorities. 

Whether they’ve been in the workforce for years or are looking to begin a new career, people’s expectations of what they want from their employer have shifted. 

And the talent pool has the upper hand. The barriers to change jobs have never been lower, thus leading to “The Great Resignation” and a war for talent. 

Having access to industry data and benchmarks that show what current compensation packages look like in a particular region or for specific roles can help advisors who are looking to hire in this challenging environment. 

Keep reading to gain insights from Schwab’s 2021 RIA Compensation Report that can help support your firm’s talent strategy.

When to hire new talent

The study showed bringing on talent to support firm growth and client needs became an even higher priority than before. 

Nearly 80% of firms said they planned to hire in 2021, with recruiting staff being reported as the second most important strategic initiative (right behind growth) for firms—the highest it’s ever been in the annual study to date.ii 

If current growth rates continue, the median firm in the study will need to hire six new roles over the next five years, without accounting for employee turnover.

But advisors often struggle with knowing when to hire and may even wonder what the next role to bring on should be. 

As firms grow, they generally add a new role for every $325K in revenue.iii These jobs are typically dedicated client service team roles, specialized roles, and executive management positions.

Creating a competitive offer

A compelling compensation strategy and well-defined employee value proposition (EVP) can help advisors set themselves apart in today’s labor market. 

An EVP is defined as a set of offerings a firm provides for its employees in return for the skills, capabilities, and experiences they bring to the firm. A firm’s EVP should be clearly communicated and shine through on the website, job postings, during the interview process, and beyond. It’s also important that it speaks to a diverse pool of talent. This will help with recruiting in the current market. 

One of the biggest factors for people considering a new job is compensation. Firms are offering financial rewards beyond base salary to create attractive compensation packages that align staff with the firm’s overall goals. 

The study results showed that 74% of firms use performance-based incentive compensation.iv These firms more often have documented foundational planning elements—like a strategic plan—so that they can design incentives that align with the strategy and vision of the firm and help drive performance. In fact, firms using performance-based incentive pay saw stronger long-term results. Their median 5-year revenue and client compound annual growth rates were 54% and 134% greater, respectively, compared with those firms not using performance-based incentive pay.v   Equity ownership is another important part of compensation. At the median firm in the study, one in three staff are equity owners. And of the working ownersvi, over half are under the age of 50. Sharing equity is used to align employee goals with those of the firm and can offer a formal path to partnership to retain key employees. This doesn’t necessarily mean those employees will someday lead the firm. Instead, it can allow everyone to share in the firm’s success and instill an ownership mindset—both of which help with staff retention.

Using nontraditional benefits to attract and retain talent

Offering more than financial compensation is an important part of a firm’s total rewards package. 

Traditional benefits like health and dental insurance are typically table stakes these days.  

Nontraditional benefits are being used by firms to offer compelling incentives that support work-life balance. Consider things like flexible work schedules, remote or hybrid workplace models, and a family-friendly work environment. Foster a culture where employees know they are supported when they need to put family first. 

Another top contender is career path opportunities to support development, improve engagement, and build bench strength. In fact, 87% of larger firms (more than $1 billion in assets under management) reported offering a client service career path.vii  

Internal promotion also provides progression and advancement opportunities for staff. Over half of firms with more than $1 billion in assets said they internally promoted staff in 2020. 

Investing in staff helps employees feel connected and appreciated. The median firm with $250 million or more in assets under management spent over $1,700 per professional on training, education, and professional dues.viii

TLDR? Here’s what you need to know:

The RIA industry has seen remarkable growth and studies like Schwab’s 2021 RIA Compensation Report are crucial for helping firms evaluate how their approach to employee compensation, incentives, benefits, and firm ownership compares with that of their peers, especially in a year of such change. 

With the continued war for talent, attrition risk is high for recent hires. Having a well-defined and thoughtful onboarding experience is important so new hires feel integrated into the firm’s culture and see a long-term path for success. 

Talent is the differentiator of the future and Schwab believes that firm owners and leaders willing to invest in their employees will see benefits over both the short- and long-term.

i For all firms with $25 million or more in AUM. 

ii For all firms with $250 million or more in AUM. 

iii Based on median change in revenue for firms with 1 to 20 staff. 

iv Performance-based incentive pay includes discretionary bonus and compensation resulting from firm goals, department or team goals, and business development results. It does not include compensation tied to revenue generation. 

v Compound annual growth rate over the period 2016 through 2020. 

vi Working owners are staff that hold equity in the firm. 

vii Firms with staff in at least 2 of the 3 client service roles (Client Service Associate, Client Account Manager/Relationship Manager, Senior Client Account Manager/Relationship Manager) listed in the Compensation section of the RIA Benchmarking Study from Charles Schwab. 

viii Median results. Includes only those firms investing in training, education, and professional dues for staff. 

Past performance is not an indicator of future results. The 2021 RIA Benchmarking Study from Charles Schwab was fielded from January to March 2021. Study contains self-reported data from 1,340 firms that custody their assets with Schwab Advisor Services or TD Ameritrade and represent over $1.5 trillion in AUM. One thousand thirty-six advisory firms participated in the compensation portion of the 2021 study, representing over three-quarters of those who participated overall. Data was collected on nearly 13,000 employees across 27 roles typically found at RIAs.  

Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading, and support of Schwab. 

Independent investment advisors are not owned by, affiliated with, or supervised by Schwab. For informational purposes only.