RIAs must step up their compensation game in order to emerge victorious in the increasingly intense struggle to win top advisors.
“Competition and demand for talent among RIAs is fierce and growing,” says Lisa Salvi, vice president of business consulting and education for Schwab Advisory Services.
In fact, 76% of advisory firms surveyed by Schwab for its annual compensation report say they are planning to hire from other firms in the next 12 months.
That’s why RIAs need to offer a “compelling compensation strategy” to remain competitive in a tight labor market, according to the report.
For example, offering employees equity participation in the firm and providing a partnership track for senior executives can be a “big differentiator” for RIAs, Salvi says.
“Top-tier advisors are looking for a proven path to equity ownership,” Salvi says, noting that 83% of RIAs with over $1 billion in AUM offer some form of equity sharing.
Nearly half of responding firms reported that senior client relationship managers had ownership in their firms in 2018, according to the compensation report. That’s up from 38% in 2014.
Firms should also consider using more incentive-based compensation to attract and retain advisors, Salvi says, adding that those incentives shouldn’t be just based on personal goals like the size of an advisor's book of business.
“Incentives are increasingly team-based and firm-based,” Salvi says. “You have to create a cycle of opportunity. Good people are attracted to growing firms.”
Generous health benefits and offering clearly defined career paths to younger employees are also key components for competitive compensation package, Salvi says.
Compensation costs now account for 70% of RIA revenue.
And, of course, RIA salaries and total cash compensation are as important as ever — and continue to climb.
Median total compensation for the industry, including owner profit distributions, rose 7.5% over four years, to slightly over $100,000, in 2018 from just above $93,000 in 2014.
Total compensation for senior client relationship managers rose 16% in the same time period, to $231,000. Total compensation for investment portfolio jumped 15% to $173,000.
Compensation costs, which now account for 70% of RIA revenue, are unlikely to decrease as advisory firms keep growing, according to Salvi.
Indeed, firms need to plan for “increased staff and more complex organizational structures,” according to the report.
