Good employees are the bread and butter of a successful advisory firm, and Schwab Advisor Services finds three main ways to attract those type of employees. For Schwab’s 2014 RIA benchmarking study, 900 firms, representing nearly 8,000 jobs across 21 roles typically found at RIA firms were surveyed, according to a statement.
The ways to attract top talent are linking compensation to performance goals, including additional compensation beyond a base salary, and expanding equity partners.
“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,” said Nick Georgis, vice president, Schwab Advisor Services, in a statement.
These main strategies can not only attract successful employees, but RIA firms can implement them to retain those advisors as well.
“With this growth, we see increasing competition for talent,” Georgis said. “In fact, 50% 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. 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.”
Link Compensation to Performance Goals
According to Schwab, linking pay to performance goals motivates employees to “strive for increased productivity and greater firmwide profits.” To reinforce these goals and track career development, regular performance evaluations should be implemented. This confirms that the compensation plans are in sync with the firm’s strategic goals.
Offer a Bonus
The Schwab data show that base salary accounted for 88% of total cash compensation in 2013, and more than 91% of employees receive some sort of incentive compensation. Eighty percent of firms offer medical insurance, and only 46% of the firms offered dental insurance as well.
While base salary is expected for job performance, attractive compensation plans include additional incentives such as benefits packages, noncash compensation, and a formal path to partnership, which links a firm’s strategic goals with employee behavior. Nearly half of the firms also provided other benefits such as long-term disability and fully paid parental leave.
Expand the Number of Equity Partners
The data ahows that larger firms are more inclined to “develop a formal path to partnership.” By expanding the firm to a greater number of equity partners and principals, the firm inevitably shares responsibility among all of the partners. This leads to greater long-term growth and is a necessary component in establishing a sustainable business.
“Talent management is an essential focus for firms, especially as founders and principals look to develop the next generation of leaders and build enduring enterprises,” Georgis said. “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.”
Check out Advisors’ Human Capital Disaster on ThinkAdvisor.