November 12, 2010

Asset, Wealth Firms to Hire and Raise Pay in 2011: Russell Reynolds

U.S. pay seen rising 10-15% versus 15-20% in Canada, Europe and Asia

Hiring in the asset and wealth management industry rebounded in 2010 after two years of contraction, and salaries in the United States are set to show modest gains in 2011 along with new hires among retirement advisors and independent RIAs, according to a report to be released Monday by executive search firm Russell Reynolds Associates.

While overall U.S. pay is set to increase 10% to 15% this year, compensation in Canada, Europe and Asia is expected to jump 15% to 20%, although bonus pools will become final later this year than  in previous years.

The 14th annual Russell Reynolds report, “Navigating the New Terrain in the Asset and Wealth Management Industry,” scheduled for release on Nov. 15, reviews talent and compensation trends within both traditional asset and wealth management firms and those focusing on alternative investments, including hedge funds, real estate, and private equity, in the Americas, Europe and Asia/Pacific.

Russell Reynolds Associates is a global executive search and assessment firm with its U.S. headquarters in New York. Through its 37 wholly owned offices, the firm’s 275 professionals conduct senior-level search assignments in a range of industries for public and private organizations of all sizes.

As the investing rebound takes shape, Europe and Asia are pulling ahead of the United States in attracting and committing capital, and compensation naturally reflects that,” said Cornelia Kiley, a managing director at Russell Reynolds, in a news release. “Many European institutional investors haven’t historically held significant allocations in equity or alternatives strategies as compared to their U.S. counterparts, so they now have the flexibility to increase allocation targets to these segments going forward.

Highlights from the report show that in 2010:

  • Wealth management remains highly competitive, with dominant national platforms fighting to hold market share in the face of consolidation and the increased threat from smaller boutiques and regional players, which are gaining ground in their ability to attract wealthy clients and top advisory talent.
  • Within the breakaway advisor trend, a dramatic shift to credit products benefited a narrow industry segment. The exodus from large brokerage firms continued to make winners of boutique private banks, independents and registered investment advisors.
  • Retention of top-producing advisors centered on open architecture, a strong brand without controversy, and a full suite of support services such as trust and risk management. Firms that offered guaranteed income products and alternative strategies were also more attractive to advisors.
  • Compensation expectations for retail distribution professionals fell flat against 2009 except for those with strong knowledge in credit and fixed-income strategy and those in international/emerging markets equity products.
  • Fixed income continued as a hot spot, with the demand for high-yield talent and teams picking up again this year. Hedge funds saw positive flows in event-driven, global macro and distressed credit, adding to the upward pressure on this group. Some of this demand was satisfied by teams coming off of sell-side prop desks.
  • Traditional long-only domestic equity was flat to slightly down from 2009 except for executives to support new products related to pre- and post-retirement advice and guidance models, intermediary channel initiatives in the RIA/independent area and new-media marketing initiatives.
  • Asset managers returned to the basics to get business back on track and focused on top-line growth now that much of the dramatic cost cutting is behind them.  “Boring is the new brilliant,” noted Deb Brown, a managing director in the firm’s Asset and Wealth Management practice, in the release.
  • Demand for chief executive officers with investment backgrounds continued into 2010, yet finding qualified individuals with the desired mix of leadership and technical skills proved increasingly difficult. As a result, “best athlete” appointments were on the rise, with solutions coming from other branches of the financial services industry such as investment banking, capital markets and the securities business.
  • Chief investment officers were in great demand as endowments, foundations, pension funds, family offices, sovereign wealth funds and asset and wealth managers were in the market for talent. Numerous simultaneous CIO searches led boards and investment committees to consider creative, non-traditional solutions.
  • Assets started flowing back into hedge funds, though new fund formation has become increasingly difficult with fewer and smaller launches on the docket. Larger, more mature hedge funds face the challenge of passing on the equity value to the next generation so that succession planning and ownership structure have come under increased review.

“Firms are still trying to do more with less and thinking hard before spending on new hires,” Brown said. “But they are also choosing where they want to make their mark in the new environment, and deliberately and strategically building in that direction.”

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