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%.

Of these, performance-based incentive pay, which 79% of firms offer, had the greatest effect on firm success, the report found. Firms that offered it saw a 28% increase in AUM, 34% greater net asset flows and 31% more clients over the last five years.

Equity ownership also remained an important part of a compensation package, and Schwab found that a third of total staff at firms with $100 million to $250 million in AUM were “working owners” while just over a quarter of staff at firms with more than $1 billion were.

Benefits
Traditional benefits, such as health and dental insurance, are now table stakes for advisory firms, and nontraditional benefits are what strengthen a firm’s job offer to desired applicants.

According to the report, top performing firms tend to offer remote work (74%), flexible work schedules (73%), investment management and financial planning for employees (69%), health and wellness benefits beyond insurance (61%) and paid time off for volunteering (47%).

Other benefits can also sweeten the relationship with potential hires, including unlimited paid time off, which is offered by nearly 20% of firms (double what it was five years ago); parental leave, which is offered fully paid by 66% of firms; and a robust 401(k) retirement plan option, in which 80% of firms participate, with a median match of 4%.

Career Path/Progression
The better the firm, the more important this is, as 82% of the larger, top-performing firms have defined career progression opportunities, compared with just 48% of smaller firms.

Not only do those top performing firms also offer more of those opportunities, they also invest more money in them, Schwab found.

For example, 80% of top performers offer staff training and skill development, compared with 60% of all other firms. Top performers also have mentoring and coaching for staff (63%) and defined steps to advancement (57%) compared with 45% and 37%, respectively, of all other firms. And those top performing firms spend about $1,730 per year per professional staff on training, education and profession dues, compared with $1,430 for other firms, the report stated.

The compensation report is an addendum to the annual Schwab Benchmarking Study, in which 1,218 advisory firms participated from January to March of this year. Data was collected for 13,500 employees in 27 roles often found at RIAs. For the optional compensation portion of the study, 80%, or 971, of those firm participated.