Compensation for all levels of RIA’s staff members has increased substantially since 2014, which is something that needs to happen if firms are to compete successfully with their peers, according to Schwab Advisor Services data released Wednesday.

Median compensation, including profit sharing, for senior client account and relationship managers rose from $200,000 in 2014 to $231,000 in 2018, a 16% increase, according to data gathered for the Schwab RIA Compensation Report from 984 RIAs.

“Compensation is a huge expenditure and it is important how a firm approaches it,” said Lisa Salvi, vice president of business consulting and education at Schwab Advisor Services. “Employees like to feel there is opportunity for growth [for themselves and the firm]. Compensation and the culture of the firm are two parts of the puzzle that can incentivize the behavior that leads to a healthy firm.

The report also noted that more than 60% of all employees in investment roles receive performance-based pay. One-third of investment and portfolio managers and 14% of financial planners have some degree of firm ownership. An average of 29% of firms rewards advisors for bringing in new clients and for increasing wallet share of existing clients.

“RIA success is driven by staff effectively serving clients and building strong relationships,” according to the report. “Rewarding and developing top talent are foundational principles that help build enduring firms.”

Compensation is particularly important because in 2018, 42% of firms recruited employees from other RIAs to fill open positions, and 73% of those recruiting firms offered equity to nonfounders.

Ownership opportunities for employees in some roles are increasing, according to the data. Forty-six percent of senior client account and relationship managers held equity in their firms in 2018, up from 38 percent four years earlier. However, equity ownership for investment portfolio managers decreased from 36% to 33% over the same time period.

Benefits such as health insurance are vital to the operations of most firms, according to the report. For firms with $250 million to $500 million in AUM, 90% provide health insurance, 55% provide dental insurance and 39% provide vision insurance. The percentages increase for all three coverages as the AUM for the firms increases.

Median compensation costs for firms with more than $250 million in AUM are 71% of firm revenue.

Schwab said it gathered the data to help firm leaders develop successful strategies for compensating, motivating, and retaining staff and to prepare for future growth. The data enables firms to evaluate how their approach to employee compensation, incentives, benefits and firm ownership compares compared to that of their peers.

“This data can help firm leaders make sure they are setting themselves up for success. It is particularly helpful when hiring for a new role within the firm,” Salvi added. “The demand for talent is increasing as firms grow.  Three out of four firms said they are hiring and that can be challenging.”