In Practice December 11, 2023

Top Performing Advisories More Focused on Inclusion

According to Schwab, financial advisories with good track records are showing more commitment to a diverse workforce.

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Fostering an inclusive workplace that recognizes and values diverse backgrounds, ideas, perspectives and experiences is becoming increasingly crucial for attracting talent in financial advisement, especially among younger generations, according to the Charles Schwab Corp.

Registered investment advisories Schwab labeled “top-performing” were more likely (64%) to have a commitment to inclusiveness in the workplace than overall survey respondents (56%), according to Schwab Advisor Services’ “2023 RIA Compensation Report,” released on Thursday. “Top performing” firms were defined as those in the top 20% of Schwab’s Firm Performance Index, which considers 15 measures, including staff attrition.

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“Cultivating an inclusive workplace that values different backgrounds, ideas, perspectives, and experiences is important to attracting talent—especially younger generations—and can help drive firm impact, innovation, and performance,” Schwab analysts wrote in the annual report. “A more diverse workplace can also help firms appeal to a broader range of potential clients as investor demographics shift with the makeup of the U.S. population.”

The study did not provide data on adviser diversity by race or ethnicity.

Schwab did note gender diversity, with an overall split of 54% male to 45% female advisers. However, a significant gender gap exists among working owners, with a split of 76% male and 24% female.

The survey also found diversity in demographics, with the younger workforce (those younger than 40) making up 46% of staff. Meanwhile, 22% fell within the 40 to 49 age group, and 32% were at least 50. The influx of young professionals is notable, as more than one-third of firms reported actively recruiting directly from colleges and universities, the highest observed rate in the study’s history, according to Schwab.

The results may be heartening for an industry undergoing widespread consolidation of both wealth and retirement plan advisers, in part due to firms seeking succession options.

“Part of [the young worker growth]  can be attributed to not only the potential compensation opportunities with this type of career, but firms having a clear employee value proposition in place that shows career pathing, and benefits that are offered beyond health insurance and retirement. We call it the give/get pact. It’s what you give to your employees to attract and keep them,” Lisa Salvi, managing director of Business Consulting and Education, says via email. “Another critical part of attracting younger talent is just awareness and education. Exposing young talent to and promoting financial planning as a career path.”

Talent Recruitment

As firms grow, they typically introduce new roles for every $300,000 in revenue, including the establishment of dedicated client service teams, specialized operational and investment roles, and executive management positions, according to Schwab. To attract a diverse pool of candidates, firms utilize various recruitment channels, including personal or professional networks (56%), registered investment advisers (27%), non-financial professional services firms (21%), banks or trusts (17%), independent broker/dealers (12%) and wirehouses (12%).

In 2023, 75% of firms hired new staff, with the median firm anticipating the need to hire four new roles over the next five years. In contrast, top performing firms are projected to hire eight new roles on average during the same period.

Recruitment of new staff ranks as the second-highest strategic priority for advisories, with three-quarters of firms expressing their intention to hire in 2024. Concurrently, the development of existing staff has risen to the sixth-highest strategic priority over the past two years, the survey found.

Career Path Focus

Nearly 80% of firms classified as “top performing” by Schwab provided career path/progression opportunities and allocated an average of $2,200 per professional staff member in 2022 for training, education and professional dues. Compensation packages remained a significant factor for candidates, with total cash compensation across the 27 roles surveyed experiencing a 17% increase at the median firm since 2018.

Most top performing firms have also embraced an employee value proposition, with more than 80% incorporating their mission statement, culture and values within the EVP framework. According to the report, “An EVP is the Give/Get pact between employee-employer and explains what a firm offers its employees in return for the skills, capabilities, and experiences they bring. It includes elements that appeal to both the head and the heart.”

Schwab’s report drew responses from 1,044 advisory firms participating in the compensation section of the 2023 study. Data was collected on more than 14,500 employees across 27 roles typically found at RIAs.

Client Service December 11, 2023

The PLANADVISER Interview: Rita Fiumara, Financial Adviser, UBS

Plan adviser Fiumara lays out the keys for an adviser to stay in front in a highly competitive marketplace.

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The PLANADVISER Interview: Rita Fiumara, Financial Adviser, UBS

Rita Fiumara has spent her career doing plan advisement with UBS Financial Services Inc., a subsidiary of UBS Group AG.

In that time, she has seen the needs of plan sponsors evolve from straightforward plan design and implementation to more holistic services for both them and their participants.

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Today, she says a “bundled service model and expertise is the latest trend” plan sponsors are looking to get from their adviser, a marketplace that raises the bar for plan advisers when responding to a request-for-proposal either from new, or existing clients.

PLANADVISER dug in with Fiumara about what today’s marketplace requires from plan advisers in responding to RFPs or requests for information. Her answers were provided by email.

PLANADVISER:  Our reporting shows that plan sponsors have ramped RFP requests over the past year—either to benchmark against their current adviser or find a new one. What does an adviser or advisory practice need to be competitive?

FIUMARA: First, I would note that lowest cost should not be the determining factor that plan sponsors seek out when conducting an RFP for a retirement plan adviser.

The best retirement advisers in the industry today need to be an ERISA [Employee Retirement Income Security Act] expert in understanding and serving as a fiduciary adviser in reviewing and monitoring 401(k) line-ups that are in compliance with the DOL [Department of Labor] rules; furthermore, they should be credentialed with certifications such as Charted Retirement Plans Specialist, Accredited Investment Fiduciary, as well as being a Certified Investment Management Analyst.

In addition, they should have extensive experience to demonstrate their expertise in serving as an intermediary and in assisting the plan committees in evaluating their record-keeper, asset fund management expense fees; providing financial wellness programs, and employee education as it relates to their retirement plan. A fiduciary advisor should also take the initiative to work with the plan sponsor to consult on the competitiveness of their plan design and operational compliance.

Lastly, serving as their advocate, they should provide fiduciary training in keeping their client informed about existing and new legislative updates and requirements. This bundled service model and expertise is the latest trend for which plan sponsors are seeking on their RFPs in looking to hire a retirement plan adviser.

PLANADVISER: What are some key areas that plan sponsors would like you to show today about your practice? Any trending areas of expertise they like to see?

FIUMARA: Plan sponsors are looking to bundle their retirement recordkeeping and retirement benefits structures and offerings. Today’s retirement plan advisers need to understand their client’s total retirement reward structure and serve as the expert in being able to consult on not only their 401(k) plan, but their HSA [health savings account] program, deferred compensation plan, bonus incentive plan, ESOP plan and stock purchase programs as well. The bundling of corporate services has become essential for HR teams who are looking for one point person and team to help them navigate through the evaluation, execution and communication of their retirement benefit programs.

The downsizing of HR teams has also been a big contributor in starting this trend as more HR team leaders are asking for help from their provider/vendor/advisor relationship to help with all their retirement plan benefits.

PLANADVISER: Fees are of course a big focus for plan sponsors. How do you structure your fees, and/or what are some common fee structures in the market right now?

FIUMARA: Fees can be structured to be as follows: Asset Base fees, Hard Dollar fees, or a combination of both.

It is essential for the plan adviser to know the plan sponsor’s demographic group in terms of employee account and provide a median account balance and average account balance to determine what is fair and equitable especially if the fees are coming out of plan assets.

A per capita fee usually makes sense for large employee groups and pro-rata may make sense if the distribution of assets results in the median account balance being lower than the average.

Asset base fees can be fair and make sense for both the plan sponsor and the advisor since the liability increases with growth the plan assets. A benchmark report should be part of the annual due diligence to confirm the reasonable fee and competitive fee structure set up for each client. For example, if the fees lie within the 50th percentile given the customization of services model provided, the plan sponsor can validate and confirm they are comfortable with their cost model.

PLANADVISER: Any other recommendations on putting one’s best foot forward in the RFP process?

FIUMARA: I would recommend providing a case study that resulted in reaching a goal specific to the employee group. It is important to understand and have affinity with the industry and demographic group for which you can provide synergies that made an impact to your client and their employees.

You can also explain how you will help provide the plan sponsor with market trends especially in working toward enhancing their plan design as it relates to recruiting and retaining employees.

Finally, have an outline that articulates the deliberate planning that will be implemented by documenting a cadence of having set dates planned for throughout the entire plan year, for example:

1) Standing monthly calls with the HR team and their recordkeeper each month.

2) Monthly employee educational meetings and topics set to be implemented and delivered for all employees.

3) Quarterly formalized Retirement Plan Committee meetings with annual fiduciary training planned in meeting all the annual governance and due diligence requirements.

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