Growing consumer demand for financial planning services is upping the pressure on registered investment advisers to attract and retain top talent.
For individual advisers, especially those just entering the profession, firms are rolling out the red carpet as they compete for talent by offering added perks, including ownership potential.
According to the Schwab RIA Compensation Report released Wednesday, about 70% of an advisory firm’s revenue is spent on compensation and total compensation is climbing, with 75% of advisory firms in hiring mode.
The report, which compiled 2018 data from nearly 1,000 advisory firms, found that median total compensation, including owner profit distributions, was $231,000 for senior level advisers, which is up 16% from five years ago.
The median compensation for investment portfolio managers was up 15% to $173,000, and median compensation for operations managers was up 10% to $101,000.
“Competition for talent is really strong, and firms should have a well-articulated strategy for recruiting and retaining talent,” said Lisa Salvi, vice president of business consulting and education at Schwab Advisor Services
The research shows that RIAs are responding to demand for benefits like health care coverage and stock ownership offers. The portion of firms offering medical insurance increased to 99% for RIAs with more than $1 billion under management.
At the other end of the spectrum, medical insurance is offered by 77% of firms managing between $100 million and $250 million.
About 90% of RIAs are considering internal succession plans, which helps explain the fact that 80% of those with at least $1 billion in assets have employee ownership that goes beyond the founders.
However, as Ms. Salvi pointed out, the level of employee ownership as a percentage of all employees has remained relatively flat over the past five years. At the $1 billion-plus firms, employee owners represent 22% of total employees, which is up just two percentage points from five years ago.
At firms with between $100 million and $250 million, employee ownership is unchanged at 33%. Employee ownership is also unchanged, at 29%, for firms with between $250 million and $500 million.
Firms with between $500 million to $1 billion saw employee ownership as a percentage of total employees drop by one percentage point over the past five years, to 24%.
Ms. Salvi said equity ownership has become an increasingly common recruiting tool, especially since 42% of firms are recruiting advisers from competitors. The survey showed that 73% of firms recruiting employees from other RIAs offer equity ownership.
“Equity ownership is key,” Ms. Salvi said. “There is increasing importance on having a good equity ownership policy as a differentiator.”
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