Our industry is in near-crisis mode with regard to assuring a reliable source of its most critical input—people. Personnel costs account for three-quarters of a firm’s expenses, and compensation costs continue to rise. Advisory firms are looking to significantly expand their teams, yet the current labor pool is challenged to just provide replacements for those retiring from the business.
According to our fifth annual industry study, “The 2013 FA Insight Study of Advisory Firms: People and Pay,” 75 cents of every dollar of advisory firm expenses is devoted to compensation, payroll taxes, benefits, training and other expenditures directly related to personnel. The survey found most firms were anticipating an expanded investment in people, with plans to increase total staff from a median of six full-time equivalents in 2012, to seven by the end of 2013.
Growing demand for experienced people, coupled with a restricted supply, is contributing to escalating compensation rates. From the first “People and Pay” study in 2009 to our current edition in 2013, advisor pay increased 5% to 10% depending upon the specific position.
What Your Peers Are Reading
The human capital issues faced by the industry may not subside any time soon, but there are clear measures individual firms can take to mitigate this pending crisis and make the most of their available labor supply. For maximizing return on precious labor resources, one important area of focus for firms is the way in which team members are rewarded as a result of their work with the firm.
Rewards can be in the form of compensation as well as softer components of job satisfaction that cannot be directly measured in dollars. It is not enough to pay a market-rate salary and expect that good talent will remain loyal to a firm. Firms need to consider both financial and non-financial motivators for fostering inspired performance as well as long-term commitment from their team members. The mix of rewards associated with a job is a critical determinant for the ease in which firms are able to attract, retain and inspire valued team members.
For insight on how firms can best apply the right reward structure, we delve further into “The 2013 FA Insight Study of Advisory Firms: People and Pay.” This is the second of four articles in the 2013 “People and Pay” series where we explore key findings from the industry’s most comprehensive human capital study.
Reward for Work Starts With Compensation
Compensation is the primary reward for work. Level of compensation is an obvious measuring stick individuals use to evaluate a position with a new company and an important factor in determining an individual’s willingness to remain with a firm. It is only natural for individuals to desire a level of compensation commensurate with their skills and experience.
Compensation benchmarking studies can be a helpful resource for firms to set appropriate pay for a position and the level of skills and experience held by the individual that fills it.
Benchmarking data can be a valuable guidepost as appropriate pay levels are in a constant state of fluctuation based on economic conditions and shifting demand. Typical advisory industry pay will shift at rates that differ from other industries, and within the advisory industry, pay levels will move at different rates according to position.