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Recruiting Talent Is Now the Top Strategic Priority for RIAs

Industry Trends and Research

Amid the ongoing war for talent, recruiting new staff has for the first time ranked as the top strategic priority for registered investment advisor firms, ahead of acquiring new clients through client referrals, which usually gets top billing.  

This is according to Schwab’s newly released 2022 RIA Compensation Report—which is an addendum to its RIA Benchmarking Study. The report reveals that 80% of firms reported they planned to hire in 2022. And based on current growth rates and the number of RIAs, the industry will need to hire more than 70,000 new staff over the next five years without accounting for attrition, retirements or new firms.

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 further notes.

“The past few years have underscored that people are truly a firm’s most important asset. And it is not surprising, based on current growth rates, the industry will need to hire more than 70,000 new staff over the next five years,” says Lisa Salvi, Managing Director, Business Consulting and Education at Charles Schwab Advisor Services. “Compensation is one piece of the broader puzzle to attracting and retaining talent in today’s market. Compensation tied to a strategic plan is what can help set firms apart,” she adds.

The report reflects responses from Schwab’s 2022 RIA Benchmarking Study, where 971 firms participated in the compensation portion of the 2022 study, representing 80% of those who participated overall. Data was collected from January to March 2022 on over 13,500 employees across 27 roles typically found at RIAs.

Value Proposition

According to the report, a compelling employee value proposition (EVP) is essential to “attract, motivate and retain top talent.” Nearly 40% of firms in the study and 55% of top performing firms have a documented EVP, which the report emphasizes is a differentiator in the competition for talent.

An EVP explains what a firm offers its employees in return for the skills, capabilities and experiences they bring. For the top performing firms, this includes:

  • A compelling work setting (85%);
  • Financial rewards beyond base salary (85%);
  • An emphasis on teamwork, recognition and connections (83%);
  • Career path/progression opportunities (82%); and
  • Defined mission statement, culture and values (79%).

Compensation, employee benefits and career path/progression opportunities are three key areas of an EVP. Not surprisingly, compensation remains the benefit that candidates value most. Schwab found that across the 27 roles in the study, total cash compensation increased over 6% at the median from 2020 to 2021.

Well-executed compensation packages link the firm’s interest with those of the employee to drive performance, the report further observes, explaining that this can be done through incentive pay, compensation tied to revenue generation and equity. In fact, 79% of firms compensated staff with performance-based incentive pay in 2021. In addition, 3 of 4 reported roles received performance-based incentive pay in 2021.

What’s more, leveraging performance-based incentive pay can help lead to stronger long-term performance, the report notes. The five-year compound annual growth rate of firms using performance-based incentive pay includes 28% in greater AUM, a 34% increase in net asset flows, and 31% increase in clients, the data shows.  

At the same time, employee benefits—both traditional and nontraditional—are an important part of a total rewards package, the report further emphasizes. Traditional benefits such as health and dental insurance are table stakes. To that end, nearly 80% of firms offer a 401(k) with the median firm matching or funding 4%.

Nontraditional benefits can also strengthen a firm’s offer. Among the most common nontraditional benefits are remote and hybrid workplace models (70% of all firms), flexible schedules (66%), and health and wellness benefits (54%). 

Career path and progression opportunities are offered by more than two-thirds of all firms and 82% of top performing firms. These opportunities can incentivize staff and improve engagement and performance, Schwab notes. To support career advancement, 80% of top performing firms provide training and skill development and spend over $1,700 per professional on training, education and professional dues.

Additionally, half of all firms include a commitment to a diverse, equitable, and inclusive workplace as part of their EVP. Putting the DEI strategy in writing can help align the entire firm around it, and top performing firms often do both, Schwab notes.

 

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