Top RIA firms offer stock options, perks in war for financial advisor talent amid labor shortages

Want to join a successful RIA? Expect perks, including stock options, Schwab says

February 1, 2022 8:05 AM

The most successful independent financial advisory firms pay their employees more, and not just in cash.

Registered investment advisory firms rolled out the perks and incentives last year amid a tight labor market and stiff competition for talent, according to a study released Feb. 1 by Charles Schwab. The other good news behind that spending: Firms that offer performance-based incentives to key employees have stronger long-term results, Schwab said in its 2021 RIA Compensation Report.

The report, an addition to Schwab's 2021 RIA Benchmarking Study last December, found that nearly eight in 10 firms said that they planned to hire last year, the second straight year of the COVID-19 pandemic. With labor markets still tight in early 2022, job-hopping, Americans leaving the workforce in a “Great Resignation” and talent still the largest expense at RIAs, the hiring is likely to continue — as well as to introduce new complexities. RIAs are the fastest-growing segment of the U.S. wealth management industry, according to McKinsey.

Last year, recruitment of staffers rose to the second-highest strategic priority at independent firms. “We’ve never seen that in 15 years,” said Lisa Salvi, the managing director of business consulting and education at Schwab Advisor Services. The compensation report surveyed 1,036 advisory firms. Schwab’s RIA Benchmarking Study is the leading analysis of the industry.

Key takeaways from the report:

Hunting grounds

Nearly 80% of firms planned to hire in 2021. If current growth rates continue, the median RIA will need to fill six new positions over the next five years. That's in addition to slots that open up through employee attrition and turnover. As firms grow, roles for a dedicated client service team, specialized services and executive management positions become more important. Here’s where RIAs are hunting for talent:

Bring on the stock options

Some 74% of firms use performance-based incentive compensation to help engage employees and advance the company’s goals. Those firms are more likely to have documented foundational elements, such as a marketing plan and ideal client profile, and see stronger long-term results. Equity ownership is a key piece of incentive compensation. At the median RIA, one-third of staffers are equity owners. “We’re definitely seeing firms seeking to share equity with a broader set of employees,” Salvi said. “University students know this and ask.”

Traditional benefits, like health and dental insurance, are considered mandatory. Surprisingly, fewer than four in 10 smaller RIAs, or 37%, with less than $100 million in assets under management offer employees health insurance. Fewer than six in 10, or 59%, with assets between $250 million and $500 million offer dental insurance.

Lisa Salvi says

Additional iInsights from Salvi:

—“More and more, talent is the differentiator of the future.”

—“It’s really important for independent firms to talk about both a base and incentive compensation component.” Because there’s a “perception in financial services that it’s all commission-based,” dangling incentive compensation “can help attract a broader set of candidates.”

—“A good executive vice president is going to touch on other things, like workplace flexibility.” They want to know “what they would get if they join your firm in exchange for their time and skills.”

—RIAs “need to have a documented career path for employees.”

—In a tight labor market, “people want to see they have the opportunity to be rewarded.”

Want to join a successful RIA? Expect perks, including stock options, Schwab says

Compensation for all top roles has grown by double digits since 2016

Hunting grounds

Bring on the stock options

Firms that offer incentive-based compensation grow more on all fronts.

Lisa Salvi says