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Here's How Much RIAs Pay Their Employees: Schwab

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What You Need to Know

  • Amid the tight labor market, RIA firms are increasingly competing for talent by offering more than traditional compensation.
  • Total cash compensation across the sector was up 14.5% overall from 2016-2020.
  • Almost 80% of the more than 1,000 firms surveyed reported they planned to hire in 2021.

RIA employee compensation continues to rise amid a tight labor market, and RIA firms are increasingly competing for talent by offering more than traditional compensation, according to the findings of the latest RIA Compensation Report by Charles Schwab.

Across the RIA sector, total cash compensation has increased each year since 2016 and was up 14.5% overall from 2016-2020, according to the report, which is an addendum to Schwab’s 2021 RIA Benchmarking Study that was released in July.

Client service teams and specialized roles have seen increased compensation during that same five-year period, Schwab said.

As examples, the report noted the median rise in cash compensation for the following roles:

  • 20% to $238,000 for senior client account/relationship managers
  • 15% to $107,000 for client account/relationship managers
  • 13% to $65,000 for client service associates
  • 7% to $177,000 for investment/portfolio managers
  • 12% to $95,000 for research analysts
  • 18% to $110,000 for operations director/managers
  • 15% to $64,00 for operations associates.

Compensation costs accounted for 71% of an RIA firm’s expenses in 2020, Schwab said.

The median firm with $250 million or more in assets under management spent over $1,700 per professional on training, education and professional dues in 2020, based on data collected from January to March 2021 on almost 13,000 employees across 27 roles typically found at RIAs, the report said.

Nearly 80% (78%) of the more than 1,000 firms surveyed reported they planned to hire in 2021, according to Schwab.

If the current growth rates continue, the median firm will have to hire six new roles over the next five years, not even accounting for employee attrition and turnover, the report said.

The top recruitment channel in 2020 was personal or professional networks, which accounted for 49% of recruitment, ahead of RIAs (30%), colleges and universities (27%), non-financial professional services firms (18%), banks or trusts (13%), wirehouses (10%) and independent broker-dealers (9%).

“Firms with a greater commitment to staff saw higher staff retention, helping to ensure they deliver an exceptional experience to clients,” according to the report.

Of the firms with staff departures in 2020, 59% were firms with over $250 million in managed assets, while 46% were firms with greater commitment to staff, Schwab said. The median staff attrition/turnover rate in 2020 for firms with over $250 million in managed assets was 5.8%, while the rate for firms with greater commitment to staff was zero percent.

RIA firms can pick from various “levers to create attractive compensation packages” to attract and retain talent, according to Schwab.

Those levers include incentive pay and equity ownership. Seventy-four percent of firms polled use performance-based incentive compensation to “help engage employees and advance the firm’s goals,” the report said. At the median firms, one in three staff members are equity owners.

“A firm’s compensation strategy, especially incentives, can help drive overall firm goals when aligned with the firm’s strategic plan,” the report said. “Firms using performance-based incentive pay more often have documented foundational elements and see stronger long-term results.”

To attract and retain top talent, RIA firms can “ensure they have a compelling compensation strategy and a well-defined employee value proposition to help differentiate them in a competitive labor market,” according to Schwab.

Providing various benefits is a crucial part of a firm’s offer to talent but “traditional benefits like health and dental insurance are typically considered table stakes,” the report said. “Non-traditional benefits can be used to directly impact employee satisfaction, support development, and incentivize staff with long-term opportunities.”

Such benefits include workplace flexibility to support work-life balance which, amid the pandemic, “prospective and current employees are seeking,” the report said.

Schwab’s poll for the 2022 RIA Benchmarking Study is now open, it said.