Registered investment advisors saw 10% annual growth in assets under management and 10.8% annual growth in revenue from 2017 to 2022, as well as a 6.2% annual increase in clients, according to Charles Schwab’s 2023 “RIA Compensation Report.”

But critical to this and future growth, the survey said, is the ability for RIAs to staff up as needed.

Typically, firms need to hire a new full-time employee for every $300,000 in revenue, adding dedicated client service teams, specialized operational and investment personnel, and executive management as growth requires. So the Schwab survey predicted that the median firm, which had $455 million in AUM in this year’s report, will need to hire four people over the next five years, and the median among top-performing firms—those that scored the highest across 15 key metrics—will need to hire eight.

“The top-performing firms have two times the growth of all the others, and they’re doing a lot of things exceptionally well,” said Lisa Salvi, Schwab managing director of business consulting and education. “Top-performing firms are of all sizes and all ages; they’re not just the largest. They need to hire twice as many employees to keep up with their growth.”

Certainly RIAs have been trying to hire—staff recruitment has ranked among the top two concerns for RIAs in the last three years, alternating between first and second place along with the acquisition of new clients, the report said. And 75% of firms said they were hoping to hire in 2023.

But equally important, they’re realizing, is holding on to and developing the talent they currently have. Developing existing staff ranked as the sixth-highest priority, a jump from 10th place just two years ago, the report said. Nearly 80% of the top-performing firms offered clearly defined career progression and spent $2,200 per professional on training, education and professional dues in 2022, compared with only $1,730 the previous year.

RIAs are also casting a wider net in recruitment as well, as now one-third of firms recruit directly from colleges and universities, the highest percentage since the annual compensation survey was initiated in 2014.

“Firms have a desire for younger talent with the technical training for the role, such as a CFP designation,” Salvi said. “They really like to take that younger population with the technical training behind them and then bring them on to train them in the softer skills, the firm culture and client relationships, and grow them internally.”

The compensation report is a sub-report of the annual Schwab “RIA Benchmarking Study,” which collected 2022 data from January to March 2023. More than 1,040 advisory firms participated in the compensation portion of the survey, representing more than 14,500 employees across 27 roles commonly found at RIAs.

While the survey aggregated data from all firms that participated, it also looked specifically at what it considered to be top-performing firms, those that excelled across 15 metrics in performance and behavior to land in the top 20% of all firms based on their total score.

“We do this because most firms want to perform and be in that category of more growth, more revenue, more clients,” Salvi said. “They’re trying to put the programs and strategies in place to grow and compete long term. Anyone who looks at these areas where top-performing firms excel can then put those strategies in place in their own firms.”

The survey found that compensation accounted for 69% of an RIA’s expenses in 2022, and the cash component of that—which includes base salary, performance-based incentive pay, compensation tied to revenue generation and owner profit distributions—increased 17% from 2018 to 2022.

When the compensation is broken down at a typical firm, 79% comes from base salary, 10% comes from performance-based incentive pay, 4% comes from revenue generation and 7% comes from owner profit distributions.

“This is the first year we’ve included this, and the reason why is firms want to know what is the typical way all those factors stack up together,” Salvi said. “How firms choose to do this depends on what they’re trying to accomplish. For some, the strategy is they’re going to overpay their employees dramatically, but not share equity. Others will be competitive on salary, but have some program in place that sets them apart, like all of Friday off in the summer.”

And while there are several kinds of incentive pay used by firms, such as bonuses based on firm goals (used 23% of the time), department or team goals (used 5% of the time), and business development results (used 4% of the time), it’s the vague discretionary bonus that’s used the most, at 69% of the time, the survey said.

Regardless of the form of incentive pay, the survey found that firms using it saw stronger long-term performance. Those firms had 24% more in assets under management than firms that didn’t, 19% more revenue and 38% more clients.

Another compensation tool—equity—showed little change from 2021 to 2022; one in three staffers at the median RIA with $455 million in assets under management is an equity owner. The people who most commonly received equity last year were senior client account/relationship managers, investment/portfolio managers, CIOs/directors of research, chief operating officers and chief compliance officers, with their equity stakes ranging from 5% to 10%.

RIAs are meanwhile making good progress when it comes to bringing in younger staff. Last year’s study found that 34% of employees were 50 and over, 22% were between 40 and 49, and 44% were under 40. This year’s numbers were better and showed the needle has moved: just 32% of employees are 50 and older, 22% remain between 40 and 49, and 46% are now under 40.

“This is a huge callout in my mind, that 46% of our industry is under 40,” Salvi said. “I don’t think that’s widely understood and appreciated.”

One continuing trend at RIAs is the use of an employee value proposition (EVP) document to cement what the firm offers its employees and what it expects in return. Roughly 40% of all firms now have such a document, and that jumps to 53% for the top-performing firms.

“Just like you have a value proposition for your clients, it’s actually really important to have a value proposition for your employees. It’s not a concept we invented. Netflix would have one,” Salvi said. “Aside from compensation, it’s those other factors you put in place that make you a destination for talent. That’s how you’re normally going to win someone’s decision when they’re weighting multiple offers.”

According to the survey, the employee value proposition documents at top-performing firms tend to include eight of the following items: a description of a compelling work setting; an emphasis on teamwork, recognition and connections; a defined mission statement, culture and values; career path/progression opportunities; a remote or hybrid workplace; coaching and/or mentorship; a commitment to an inclusive workplace; nontraditional employee benefits; and equity ownership opportunities.

Perhaps because they go the extra mile by formalizing what they offer in exchange for an employee’s skills, capabilities and experiences, top-performing firms scored much better than other firms in employee retention, the study found. While 52% of top-performing firms had at least one staff departure in 2022, 65% of all firms with more than $250 million in AUM lost at least one employee. The median attrition rate for top-performing firms was 3.7%, compared with 8.5% for all other firms.