How RIA Culture Is Shifting, in 7 Charts

Slideshow September 08, 2022 at 10:57 AM Share & Print

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Related: 10 More FAQs About Moving to the RIA Model

The RIA industry looks different today than it did in 2019, before the onset of the pandemic. A new study from DeVoe & Co. finds that the long-term ramifications of COVID-19 on employees’ well-being, talent management and workplace culture are still unfolding. Recovery is taking place against a backdrop of global economic and market uncertainty.

The study uncovers some alarming trends, in particular around employee retention at large firms. It also finds good news in how some firms are addressing these trends.

DeVoe & Co. surveyed some 100 representatives of RIA firms between February and May who were senior executives, principals or owners of firms with $100 million or more in assets under management.

See the gallery for seven charts that indicate how RIA culture has been affected by the pandemic.

Michael S. Fischer

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1. COVID’s Effect on RIA Culture

Asked how COVID has affected their firm, a majority of RIAs in the survey said their culture has not suffered, but a quarter of respondents cited at least some negative effects. This was especially the case for firms with $1 billion or more in assets under management, with 37% reporting some negative, or worse, effects on their culture, compared with only 11% of smaller firms.

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2. Employee Retention Suffered Post-COVID

The survey found that 37% of responding firms experienced higher-than-normal attrition in the last year, larger firms much more so than smaller ones: 45% vs. 29%. Although “return to office” was markedly different between the two segments, the analysis did not see this as the main culprit. Rather, smaller RIAs may have more effectively maintained closer connections with employees during COVID, thereby enhancing cultural connection and retention.

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3. Succession Planning Continues to Lag

Succession planning — or too often, the lack thereof — has long been an exposure point for the RIA industry. COVID was a wake-up call to those without a succession plan in place, but the survey found that succession plans are still extremely low, especially for an industry with so many owners approaching retirement age.

Thirty-five percent of respondents reported that they do not have a formal plan in place, and among these, 11% do not have a plan at all and are not considering creating one. On a brighter note, 47% of RIAs have a plan in place or in the works, including 52% of those with upward of $1 billion in assets.

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4. Next-Generation Leaders Are Not Ready to Take Over

Among RIAs that want to sell internally, many lack confidence in the readiness of the next generation to take over. The problem has gotten progressively worse since the pre-COVID years. In 2019, 57% of owners expressed low confidence in their next-generation leaders in 2019; in 2022, this sentiment had grown to 68% of respondents. Moreover, the number of firms with no viable next-generation candidates grew from 2% in 2019 to 11% in 2022.

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5. Insufficient Training Programs for Associate/Junior Advisors

One reason for the next generation’s lack of readiness to lead is that they are not being prepared to take on senior roles. Half of RIAs surveyed have only lightly structured training programs for junior employees, or none at all; 70% have no formal mentorship programs. At the same time, more firms reported that they are conducting performance reviews, thus satisfying a desire for feedback and coaching that research shows employees want. In 2022, 42% in 2022 conducted at least semi-annual reviews, up from 35% that did so in 2019.

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6. Aligning Incentive Compensation With Firm Goals

RIAs seeking to bolster their succession plans with an eye toward the future will need to present attractive compensation packages that position them as an employer of choice for the best and brightest. The number of firms with a clear, methodical advisor incentive compensation description has risen to 57% in 2022 from 46% in 2019. Still, 43% do not have a clear compensation plan.

What’s more, RIAs must ensure that their compensation plans reward the right behaviors. The study noted that the drop in the Client Revenue category (see chart) is alarming, as firm leaders need to be focused on organic growth, and the best way is through incentives that support that goal.

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7. Diversifying the Work Environment

RIA leaders are actively trying to improve their organizations’ diversity, with 70% of those surveyed saying diversity is a key or important consideration. Half of this group said that if all other criteria were equal, they would go with the candidate who improves the company’s diversity.

Certainly, there is room for improvement, as women account for just 23.4% of financial advisors in RIA channels, a mere 1.8% identify as Black or African American and only 6.8% identify as Hispanic or Asian. The DeVoe study cites research in which more than half of employees said they would be more engaged if their work environment were more diverse. It said diversity fosters new ways of thinking, improves engagement and drives better results.

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