Pay Day

In a tighter labor market for advisors,
compensation is rising, as are firms’ efforts
to make work more enjoyable

Pay Day

In a tighter labor market
for advisors, compensation
is rising, as are firms’
efforts to make work
more enjoyable

By Charles Paikert

RIAs are flush, and odds are that revenue and AUM are up at your advisory firm. So, have you gotten a raise yet?

Many of your counterparts around the country have, along with lots of perks intended to keep them happy at their firms.

Over 90% of RIAs participating in the 2017 compensation study by Fidelity Clearing & Custody Solutions reported giving salary increases as well as bonuses last year. One-third said raises ranged from 2% to 4%, while half reported increases of 4% to 10% or more.

“The labor market for advisory talent has definitely tightened,” says Michael Nathanson, president and CEO of Colony Group, the $10 billion Boston-based RIA.

Even as RIAs face an aging advisory force and not enough next-generation replacements, those challenges are compounded by a strong labor market and the likelihood that the dissolving Broker Protocol will diminish the pool of breakaway brokers, further reducing the supply of available talent to meet the voracious demand of fast-growing RIAs.

“The labor market for advisory talent has definitely tightened.”
Michael Nathanson, CEO of Colony Group

What’s more, advisory firms are finding it harder than ever to attract already elusive college graduates, says Rich Busillo, CEO of RTD Financial Advisors in Philadelphia. “It’s not just more competitive for existing advisors,” he says. “There’s also more competition for new college grads because of the strong job market in a number of industries.”

More than two-thirds of RIAs with more than $250 million in AUM made talent acquisition a priority last year, as did nearly all firms with $1    billion or more in AUM, according to Charles Schwab’s 2017 RIA Benchmarking Study. Few expect the trend to diminish anytime soon.

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As a result, compensation is on the upswing. At Colony Group, salary increases averaged 3% to 5% last year, Nathanson says. RTD Financial Advisors’ pay increases ranged between 2% and 6%. Salaries for entry-level advisors start at $50,000 to $60,000, Busillo says.

Base salary increases at Atlanta-based Homrich Berg Wealth Management averaged 3% last year, but a number of employees had their paychecks rise 6% to 10%, says Paul Ribes, the RIA’s chief operating officer. Base salaries for college graduates at the firm are around $50,000, he adds.

Across the country, in Long Beach, California, advisors starting at Halbert Hargrove can make $80,000, according to Cecilia Williams, the firm’s chief compliance officer.

Such regional differences are not uncommon. Median total compensation for lead advisors in San Francisco is $193,000, according to Fidelity’s research, while lead advisors in Dallas make $175,000. The spread is less for positions further removed from clients. Operations managers in San Francisco can expect to receive $102,000, but total compensation for the same job in Chicago isn’t far behind at $94,000, the Fidelity report shows.

Regional Pay Differences

Nationally, industry compensation studies are hardly uniform.

Fidelity reports that the median total cash compensation for relationship managers in 2016 was $120,000, while Schwab’s Benchmarking Study for the same position in the same year was nearly $30,000 less.

Similarly, FA Insight reports that business development specialists received $180,500 in median total compensation in 2016, while Fidelity’s data has that group receiving $163,000 in total direct compensation.

But there’s no doubt that CEOs are by far the top earners, followed (not closely) by chief investment officers. The median total direct compensation for the CEO/president position is $630,000, according to Fidelity, while CIOs receive $375,000.

As for the front lines of financial advisory firms, the median total direct compensation for office managers for all firms was $110,200 in 2016, according to Fidelity, while office managers in firms with more than $5 billion in AUM received $123,200.

But money is only one part of the compensation picture. “It’s really about the employer value proposition,” says Vanessa Oligino, director of business performance solutions for TD Ameritrade. “When talking with potential employees, the conversation should not be about the dollar amount, but addressing their questions like: ‘Do I want to be here every day?’ and ‘How can I contribute?’ and ‘Will I be recognized?’ ”

Fidelity’s vice president of practice management and consulting, Anand Sekhar, agrees. “Salary and bonuses are table stakes now,” Sekhar says. “People want to be inspired. They want to feel empowered and energized when they go to work.”

Firms are increasingly doing that by offering what Sekhar calls “creative benefits.” RTD Financial, for example, has a so-called fun committee. The committee has its own budget and meets quarterly to plan events such as a pre-Super Bowl potluck party, an ice skating night out and outdoor happy hours, where employees can socialize and relax.

The committee also plans RTD’s annual midyear meeting, which combines business seminars with after-hours activities such as go-kart racing, as well as social-responsibility events such as a 5-kilometer run to benefit the American Stroke Foundation.

“We realized that we’re with each other almost as much, if not more, than we’re with our families,” Busillo says. “So we want to make sure we have fun while we’re doing great work.”

Being able to make decisions without prior approval from the firm’s board of directors has been critical to the committee’s success, says Rachel Moran, an RTD advisor and director of the fun committee.

“We have a budget for each year, which gives us the flexibility to plan events on the committee level without prior approval,” Moran says. “This aids in efficiency but also in ownership — employees feel empowered to suggest ideas and follow through with their planning and execution.”

Homrich Berg also has a “fun workplace” committee to arrange off-site get-togethers, monthly happy hours, and lunch and learn sessions, where employees are treated to a meal while an expert explains various aspects of the advisory business. “Everyone is involved,” says Ribes, the COO. “We want people to enjoy being here.”

Unlimited Vacation?

Another trend that’s gaining traction: generous vacation time. Colony wants to be “the leading financial advisory company in the country for clients and employees seeking meaning and joy in their lives,” Nathanson says.

Accordingly, the firm allows principals and key senior employees — about one-third of the workforce — to take unlimited vacation time (within reason) if they need it.

“If one year, an employee has to take six or seven weeks off, they can go ahead, as long as they behave responsibly and get their work done,” Nathanson explains. “It’s a matter of who is in control, and we want the employee to feel they are in control of their life.”

Employees can take “as much time off as they need, as long as it’s responsible and they can get the same amount of work done." Not surprisingly, the policy has gotten “a great response.”
Cecilia Williams, chief compliance officer at Halbert Hargrove

And if you were wondering — yes, it’s a paid vacation. Nathanson says the firm doesn’t track how many employees have taken advantage of the benefit, but he expects most will at some point. “We have not had any problems with this approach,” he says. “We expect them to get their work done, and as long as they do, everyone is happy.”

At Halbert Hargrove, vacations are seen as “a huge part of the work-life balance, which we want to be as flexible as possible,” Williams says.

Employees can take “as much time off as they need, as long as it’s responsible and they can get the same amount of work done,” Williams says. Not surprisingly, the policy has gotten “a great response,” she says, with workers being “very appreciative.”

Homrich Berg’s vacation policy is more formal, but also generous. Workers get an extra week off after every five years of employment, as well as a bonus check worth four weeks of pay.

As a long commute is a pain point for many employees, some firms, including Halbert Hargrove, are incentivizing employees to cut their commutes. The firm offers a relocation incentive of $500 per month if employees move to an area within a 20-minute drive to work, Williams says.

“A long commute can wear on you, especially in Southern California traffic,” she says. “Living closer to the office makes everything a lot easier.”

Halbert Hargrove’s family leave policy also makes life easier for new mothers, says Williams, who is pregnant with her first child.

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Under California state law, employees receive 12 weeks of paid leave, but Halbert Hargrove has sweetened the pot. Moms and dads of newborns are eligible for a child care reimbursement of $400 a month, provided they submit receipts.

The firm also provides a room where mothers can breastfeed and caregivers can stay with babies when parents return to work. “It’s a very family-friendly policy,” Williams says, “and a huge benefit for new mothers.”

At Colony, returning new mothers and fathers can work part-time for an agreed-on transition period, work from home or, if they prefer, from a nearby Colony office. The firm has secure technology installed in homes to facilitate remote working, and nursing mothers who return to work can request privacy blinds in their offices.

Around the country, RIAs are offering “more progressive family leave policies and support for working parents as they compete for next-gen advisor talent,” says Fidelity’s Sekhar. “I wouldn’t say it’s widespread at this point — those that are offering these kinds of benefits are really at the forefront of this space. But it will help establish them as a talent destination, especially as they seek to attract younger, more diverse advisors.”

Free Gym Membership

Colony Group pays 50% of employees’ gym membership — 100% if they go to the gym at least three times a week, reported on an honor system.

The firm also gives extra days off to employees to volunteer for their favorite charity. Employees decide the causes that Colony supports via its donor-advised fund.

Some firms take employee satisfaction into account when they design offices. Homrich Berg’s new headquarters in the Buckhead section of Atlanta, set to open this summer, was configured with employee retention in mind, according to Ribes.

“We saw that people wanted lots of natural light and liked an open concept, where they could get together with their team in their own neighborhood,” Ribes says. “We also made sure to include a Starbucks-like café area where people can both collaborate on work if they want to or just relax and take a break.”

Homrich and a growing number of innovative firms are clearly taking the advice of Fidelity’s Sekhar to heart.

“Firms today have to address how they can most effectively drive and engage their workforce,” he says.

“They have many options, but they can’t be static.”

Special Report: Compensation continues below

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How fee-based assets are remaking a $20T industry

IBDs and regional firms are making the biggest changes, but RIAs have room for growth as well.

By Tobias Salinger

It seems a dramatic milestone at first glance: client assets have reached a record high of $20 trillion. But this stunning number obscures a far more significant shift from commissions to fee-based accounts, which is reshaping the advisory industry.

At the end of 2016, 39% of client assets were in fee-based programs, up from 30% in 2010, according to a report last June by Aite Group. The consulting firm predicts that this trend will accelerate, so that at least half of all client assets will be in fee-based programs by the year 2025.

Financial advisor Kim Kropp has watched the industry’s shift firsthand since she and her business partner launched their RIA practice in the ‘90s. Her firm, Moylan Kropp, in Omaha, Nebraska, manages client assets of $440  million, with 60% already in fee-based accounts under Securities America’s corporate RIA, she says.

Her firm’s share of fee-based assets will rise to about 80% of its client assets in the next five years, she predicts, driven in part by demand for holistic planning rather than robo advice.

“Pretty soon people are going to understand that it’s better to have a human being in front of you than a robot,” Kropp says. “That’s where I want it to be. That’s the gratification of our profession.”

Independent and regional broker-dealers are changing the most in the shift to fee-based planning, with major firms like Advisor Group cutting their commissions and taking on some new issues like planning for increasingly long life expectancies.

Wirehouses preceded them in pivoting to fee-based accounts, and even RIAs have room for more growth in that area. Then there’s the insurance industry, where commission-free products have barely made inroads yet.

Overall, the fiduciary rule and the presence of robo advisors have disrupted the wealth management space, but advisory accounts bring more reliable revenue than products.

In addition, technology offers incumbent firms new avenues for business, says Bill Butterfield, the author of the Aite Group report.

“I do see a continued shift to fee-based as we move forward over the years,” says Butterfield, a senior analyst for wealth management.

“For those who just want to buy and sell stocks, or just need the execution piece, that’s where the self-directed firms will play,” Butterfield continues. “Everything’s pointing in the fee-based direction.”

Fee-based accounts constitute 34% of the assets at self-clearing independent and regional BDs, compared with 38% at the wirehouses, according to Aite Group.

The regional and independent self-clearing firms, which include LPL Financial, Edward Jones and Ameriprise, crossed $1 trillion in fee-based assets in 2016.

Wirehouses’ greater resources gave them a head start, according to Butterfield, who estimates that fee-based assets at the largest independent and regional BDs will top 50% by 2027.

Tech tools around services like long-term care, health savings accounts and complex estate planning can help speed up the move, he says.

Butterfield hasn’t yet seen any firm introduce such software on a large scale. With robo advisors suppressing fees for asset allocation and offering well-designed apps for clients, technology around other services would be a boon to incumbents, says Lex Sokolin, a partner at Autonomous Research.

“Brokers have to increasingly become advisors to their clients, whether around financial, health or life planning,” Sokolin adds. “Technology that enhances that human relationship for the advisors will win out in the long term.”

The lasting role of the fiduciary rule in that mix remains unclear, but many advisors and BDs have argued that it makes it harder for them to compete with robos for smaller clients.


The Fiduciary Rule

The fiduciary rule has already heightened scrutiny on commission-based products in retirement accounts, which has driven the shift to more fee-based accounts industrywide, according to Butterfield’s report.

Many firms have already carried out significant changes, even as they retain some commission-based services. At the same time, the fiduciary rule has divided the industry into supporters and opponents, leaving IBDs arguing that their commissions still have a place.

Kropp started focusing on fee-based services in the ‘90s, when she opened her RIA practice.

The firm’s new business now falls almost entirely on the fee-based side, except for 529 plans and guaranteed-income products, she says, noting many of its mutual fund shares are also converting to lower-cost classes.

A member of the Financial Services Institute’s board of directors, Kropp says she believes that some of the rhetoric surrounding the fiduciary debate unfairly equates independent advisors with stockbrokers and that, if it’s ever fully implemented, the rule could limit an advisor’s options.

Even though most of her firm’s business falls on the fee-only side, she says she’d still like to offer commission-based products when she thinks they’re a better fit. For example, an annuity allowing for guaranteed income plus investment returns would work better for a pensioner than a savings account or a CD, she says.

“I do a plan for every client,” Kropp says. “I look at every aspect of their financial picture. Nobody fits in a box. I don’t use a template for my plans.”

IBDs and regional firms have made similar arguments even as they adjust to changing times. In early February, Ladenburg Thalmann hired the asset management veteran John Blood for a newly created senior vice president position boosting the IBD network’s fee-based services and presence in the RIA space.

The same month, Raymond James launched a suite of longevity planning tools. The software integrations include services like estate planning, health care, wellness and protection from elder fraud. Some 40 advisors serving on the firm’s Retirement Solutions Advisory Board had proposed the idea.

At Advisor Group, the share of fee-based accounts increased to 37% by the end of 2017, up from 31% four years earlier, according to CEO Jamie Price. He serves as the chairman of the IBD network’s Longevity Council, which Price describes as working on helping its 5,000 advisors with holistic services.

Commission-based advice fits that description, he says, when it’s less expensive and solves the client’s need. The Longevity Council, which had its first meeting in January, consists of executives from 16 major insurance firms tasked with trying to address the financial problems posed by people living longer.

Living for decades solely on income received during 40 years at a job is impossible, according to Price, who sees longevity planning as a neglected part of risk management.

Advisor Group is endeavoring to help advisors grow their businesses with a holistic, more fee-based approach, while attacking the difficult longevity issue.

“I think our industry is the industry that has to solve for that,” Price says. “We serve the very clients that have the possibility of outliving their money, and this is where I think the insurance industry can play a part. And it can’t be about the next whiz-bang product with a nice new bell and whistle on it.”

DPL Financial Partners helps RIAs find insurance without bells and whistles like commissions and high fees, CEO David Lau says.

The firm, founded in 2014 by Lau, the former COO of Jefferson National, took more than two years to get to market simply because there weren’t enough such products.


Insurance Carriers

Insurance carriers have started offering more fee-based or hybrid products, but they still constitute only about 1% of overall sales, according to Lau. His Louisville, Kentucky-based firm, which has about 50 clients, received a capital infusion from the private equity firm Eldridge Industries in February.

The firm offers commission-free life insurance and annuities, and it’s working on health insurance products like long-term care, Medicare supplements and disability.

Advisors at RIAs have been responsive to what Lau refers to as his personal crusade, he says.

“Insurance is one of the last bastions of commission-based, transaction-based business in the advisory world. You rarely see loaded mutual funds being sold. You don’t even have to say ‘no-load’ anymore — it’s assumed,” Lau says. “Insurance is the opposite. It’s almost exclusively commission-based.”

The bottom line will loom large in the next move for firms of any type, says Butterfield, the Aite Group analyst. And fee-based assets look good to firms when compared with the ups and downs of product sales.

“They’re able to smooth their revenue stream and make it more predictable, which is usually desirable for any type of business.

“It allows them to deepen that relationship with clients and insert themselves into one financial life,” he adds, “more than just selling products.”

Kim Kropp is a partner at Omaha, Nebraska-based planning practice Moylan Kropp