The RIA industry is growing and evolving at a remarkable pace. As the industry has matured, independent registered investment advisory (RIA) firms have grown in size and complexity along with it. Responses from more than one-third of firms participating in Schwab’s 2014 RIA Benchmarking Study[i] indicate that they have doubled their assets under management (AUM) and revenues since 2009.
The rapid growth has made the industry landscape more competitive. RIA firms today are working harder not only to build and sustain their businesses, but also to secure and retain quality talent for their firms. Attracting and retaining top talent is more competitive than ever, but it’s also more important than ever. Study results suggest that the firms who attract and retain quality employees are more profitable than average firms in their peer groups. They also report that they are growing faster, and as a result, they tend to be more focused on prioritizing talent as part of a strategic imperative. A competitive compensation plan for all employees is an essential element of a firm’s overall strategic goals.
Attract Top Talent With a Competitive Compensation Strategy
Although it may seem basic, many firms struggle to develop a compensation strategy that is both competitive in the marketplace and cost effective for the firm. Compensation typically accounts for about three-quarters of an advisory firm’s total expenses, so the importance of achieving this balance is critical.
Meanwhile, as growth in the RIA space has accelerated, an influx of new entrants to the independent channel has made the ability to attract quality staff across all levels of an RIA firm more challenging. In 2013, 50 percent of new hires at firms in our Study left one firm to join another, which makes apparent that the risk of losing key employees to competitors is very real. Retaining top performers will continue to be a key component of growth and sustainability for RIA firms in 2015.
We see that RIA firms are adapting to the ever-changing landscape by creating operational structure that supports their continued growth and helps them operate more efficiently. Top-performing firms are achieving this objective by casting a wider talent net to recruit top performers from professions with similar client-service philosophies. Among firms in our Study, dedicated management positions – chief operating officer, chief investment officer, chief compliance officer, etc. – are seen at nearly half of firms with more than $1 billion in assets, while 79% of firms report at least one certified financial planner on staff, 65% have at least one chartered financial analyst, and 51% have at least one certified public accountant on board.
Best Practices Among Top Performing[ii] Firms