Registered investment advisor (RIA) firms have doubled their assets under management over the last five years, creating a need for talent so great that recruitment has become the highest priority for all firms, eclipsing even attracting new clients for the first time, Schwab’s 2022 RIA Compensation Report found.
The report, released today, found that cash compensation at registered investment advisor firms, which employees value the most of all benefits, increased 6% from 2020 to 2021 as firms did what was necessary to attract and retain talent. Since 2017, cash compensation has increased 16%.
With a little number crunching, the report calculated that the industry will need to hire an additional 70,000 employees over the next five years—roughly six staffers per firm—and that’s without accounting for plugging holes due to attrition or retirements, or for new firms that are formed.
“Generally, firms add a new role for every $360,000 in revenue, bringing on dedicated client service teams, specialized operational and investment roles, and executive management positions as they grow,” the report stated.
This employment gap is so wide that it was the main point of the welcoming address at Impact 2022 in Denver last month, delivered by Jon Beatty, Schwab’s chief operating officer of advisor services. To do its part in building a pipeline of interested and qualified potential candidates, Schwab is increasing its presence on college campuses around the country.
There are three areas where firms can focus when recruiting, the report found: compensation, benefits and career path/progression opportunities. Nearly 40% of all firms and 55% of top performing firms document these key offerings in an employee value proposition (EVP), which Schwab called “a differentiator in the competition for talent.”
“An EVP is a set of offerings the firm provides to staff in return for the skills and experiences employees bring to the firm,” the report stated. “[It’s] the currency firms are using to attract, motivate and retain talent.”
A compelling EVP addresses the needs and aspirations of employees, the report outlined, including detailing a compelling work setting; financial rewards beyond base pay; the emphasis on teamwork, connections and recognition; career path/progression opportunities; a defined mission statement, culture and values; nontraditional employee benefits; a commitment to inclusion, and equity ownership opportunities.
Compensation
With compensation costs accounting for three-quarters of a firm’s expenses, it better do what it’s supposed to do. The report found that packages that include more than just base salary help align staff with the firm’s goals.
Across all roles, base salary accounted for 77% of total cash compensation, with performance-based incentive pay accounting for 11%, compensation tied to revenue generation accounting for 4% and owner profit distributions accounting for 8%.