Base salary accounted for 88 percent of total cash compensation in 2013 at registered investment advisory firms, but more than nine out of ten (91 percent) of RIA employees received a form of incentive compensation.
Charles Schwab discloses this finding in its “2014 RIA Benchmarking Study.” The research draws on responses from nearly 900 firms, representing nearly 8,000 jobs across 21 roles typically found at RIA firms.
According to the research, nearly a third (32 percent) of RIA firms with more than $1 billion in assets added new equity owners in 2013. Only 8 percent of firms under $250 million in assets added new owners in that year. The report identifies three keys to attracting and retaining quality employees at RIA firms:
- Aligning compensation plans with business strategies;
- incorporating more than base salary into compensation plans; and
- creating a path to equity partnership for key employees.
Because compensation accounts for about 75 percent of firms’ total expenses, a “strategic and competitive compensation structure is vital” to enabling firms growth and staying competitive, the report states. By linking compensation to performance goals, employees are more likely to strive for increased productivity and greater firm-wide profits.
Additionally, regular performance evaluations can be used to reinforce goals, track career development, and reconfirm that compensation plans are aligned with the firm’s strategic goals.
“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 and illustrates the strength and maturation of the RIA model,” says Nick Georgis vice president, Schwab Advisor Services. “With this growth, we see increasing competition for talent. In fact, 50 percent of new hires in 2013 left one RIA firm to join another.
“It’s therefore vitally important for firms to develop well-planned and cost-effective ways to incentivize top-tier employees to join and remain in their ranks,” he adds. “The most successful firms are doing this by establishing operational discipline to manage the growth of their business, and part of that discipline includes sharpening their compensation philosophies.”
Apart from base salary, RIA compensation packages may include benefits packages, non-cash compensation, plus a path to partnership tying a firm’s goals to employee performance.
Medical insurance is offered by 80 percent of firms, while 46 percent of firms polled provide employees with dental insurance. Other benefits, such as long-term disability and fully paid maternity/paternity leave, are also provided by nearly half of firms.
The following infographic highlights other key findings from the benchmarking study.