“Talent management is an essential focus for firms,” says Nick Georgis, vice president, Schwab Advisor Services. “Competitive and comprehensive compensation packages, along with clear paths to partnership, help ensure retention of employees within a highly competitive talent environment, setting up firms for success now and into the future.”
From its analysis of hundreds of RIA firms representing thousands of jobs, Schwab found three main principles can apply to maintain top talent across all employment levels:
Align compensation with business strategy. To motivate employees to improve their productivity, and generate greater firm-wide profits, link compensation to performance goals. Regular evaluations can encourage employees to focus on these targets, and can help track an individual’s career development.
Incorporate more than salary into compensation plans. Benefits packages, non-cash rewards and an official course to partnership in the firm can further motivate employee performance. The compensation data Schwab studied found that base salary accounted for 88% of total cash compensation in 2013, but most employees (91%) received some form of incentive compensation. Four in five firms (80%) provide medical insurance, but less than half offer dental, life and vision insurance.
Integrate key employees into the ownership or partnership structure. This process has the added bonus of promoting a sustainable business model. Having more equity partners allows RIA founders and principals to share the responsibilities of maintaining a healthy business, which can lead to greater long-term growth. Larger firms are likelier to develop a formal path to partnership, the study found: One-third (32%) of firms with more $1 billion in assets added new equity owners in 2013, compared with less than one in 10 firms with under $250 million in assets (8%) that did so.
According to Schwab, compensation accounts for roughly 75% of a firm’s total expenses. Thus, as part of the 2014 RIA Benchmarking Study, the firm incorporated questions about compensation in its survey of nearly 900 firms, representing nearly 7,962 employees holding 21 roles commonly found at RIA firms.
“We know from this year’s Benchmarking Study that more than one-third of participating firms doubled their assets under management [AUM] and revenues since 2009, which shows remarkable growth … [in] the RIA model,” says Georgis. “With this growth we see increasing competition for talent.” In 2013, half of new hires left one RIA firm to join another, he points out. Therefore, it is “vitally important” that firms develop effective strategies to incentivize top-tier employees to join and remain in their work force.
Further information about the compensation data from the study is available for download here.