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.”