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.
“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.
Offering 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.”
For additional detail about the compensation data from the 2014 RIA
Benchmarking Study, an infographic is available for download here.
About the RIA Benchmarking Study
Schwab designed this Study to capture insights in the RIA industry,
based on survey responses from individual firms. The 2014 study provides
information on topics such as asset and revenue growth, sources of new
clients, products and pricing, staffing, compensation, marketing,
technology, and financial performance. A total of 1,132 advisory firms
representing three-quarters of a trillion dollars in AUM that custody
their assets with Schwab participated this year, making this the leading
study in the RIA industry.
The RIA Benchmarking Study comprises self-reported data from advisory
firms that custody their assets with Schwab. Schwab did not
independently verify the self-reported information. Participant firms
represent various sizes and business models. The 2014 RIA Benchmarking
Study collected detailed compensation information from nearly 900
advisory firms representing nearly 8,000 employees across 21 roles
typically found at RIA firms.
Compensation details for each role are reported with base salary,
additional compensation (incentive compensation and compensation tied to
revenue), and total cash compensation independently. Total cash
compensation is calculated as the median of the total cash compensation
reported for each response (base salary plus additional compensation)
and not as the sum of the medians of base salary and additional
compensation (incentive compensation and compensation tied to revenue.)
Base salary and additional pay are representative of only those
positions reporting pay for that compensation component.
The Study is part of Schwab's Business Consulting Services, a practice
management offering for RIAs. Grounded in the best practices of leading
independent advisory firms, Business Consulting Services provides
insight, guidance, tools, and resources to help RIAs strategically
manage and grow their firm.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of challenging
the status quo in our industry, innovating in ways that benefit
investors and the advisors and employers who serve them, and championing
our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com.
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Disclosures
Through its operating subsidiaries, The Charles Schwab Corporation
(NYSE:SCHW) provides a full range of securities brokerage, banking,
money management and financial advisory services to individual investors
and independent investment advisors. Its broker-dealer subsidiary,
Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; compliance and trade monitoring solutions; referrals to
independent fee-based investment advisors; and custodial, operational
and trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles Schwab
Bank (member FDIC and an Equal Housing Lender), provides banking and
lending services and products. More information is available at www.schwab.com
and www.aboutschwab.com.
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.
©2014 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC.
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Copyright Business Wire 2014