A comprehensive report on RIA employees and compensation released Thursday showed that companies are evolving to better attract and retain talent. But the world will not look the same on the other side of the pandemic and RIAs might need to rethink and adjust their strategies and policies to succeed in the future.
Every year, Charles Schwab, the largest RIA custodian to more than 7,000 wealth managers, surveys more than 1,000 RIAs and publishes a benchmarking study. There is much to glean from them. Among other takeaways, the 2019 survey showed many RIAs were not prioritizing succession planning like they should, and the 2020 survey was a reminder they are, as always, fixated on growing.
But in addition to the general 2020 benchmarking survey, 761 of the RIAs also shared details about their employees and compensation. The results of the more focused research were published in a report Thursday and showed areas of progress in the industry.
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Employees are the most expensive line item for RIAs. Compensation costs accounted for 74% of RIA’s expenses in 2019, according to the 2020 survey and report. However, 75% of firms hired staff in 2019 (the median firm hired two employees) and said they planned to hire more in the future.
Some firms specifically hire more employees, anticipating they will bring their clients — and more revenue — with them. As RIAs manage more money (typically for a greater number of clients) they grow more complex and also require all kinds of new employees, such as compliance, operations, technology or marketing professionals.
Where RIAs are finding new employees might surprise some firms. The longtime trend of advisors trickling out of the so-called wirehouse brokerages (Bank of America’s Merrill, Morgan Stanley Wealth Management, Wells Fargo Advisors, and UBS Wealth Management) to start or join RIAs continues. Although the trend has not had a material impact on some of those businesses, that group of advisors has heft and will represent in aggregate $529 billion over the next five to 10 years.
There is a lot of talent opportunity there for RIAs, but most are hiring employees from other RIAs.
There is a dearth of young professionals interested in wealth management and competition for talent overall is increasing, according to practice management consultants at Schwab.
As a result, more RIAs are making changes to their companies and ownership structure to attract and retain employees. Median total cash compensation across the 27 of the most common roles at RIAs rose 4% from 2018 to 2019.
But firms are doing other things, too, such as formalizing positions and career paths — something critically important even to university students pursuing a career in the industry, said Lisa Salvi, vice president of Business Consulting & Education at Schwab Advisor Services.
More RIA workers are becoming owners, Schwab’s 2020 compensation study also showed.
Still, more changes might be necessary on the part of RIAs.
Schwab’s 2020 surveys were conducted through the first few months of last year, just as the Covid-19 virus began quickly spreading in the U.S. Markets tumbled and advisors were busy taking care of their clients and businesses. Even with so much uncertainty — the nature of how the virus was spreading, or how long people would need to work remotely — 73% of RIAs planned to hire more employees in 2020 and they largely executed that plan, Salvi said.
But how will any long-term plans, based at least in part on the results of the compensation study, need to change in response to a post-pandemic world, where employees might want to continue to work remotely? That’s “the number one story in practice management this year,” Jerry Cobb, a senior business management consultant at Schwab, told reporters during a press conference Thursday.
Like companies in all industries, RIAs have been surveying their own employees about how and where they would like to work in the future. They have been surprised by the different responses within their companies, Salvi told RIA Intel, and might have to be flexible to attract and retain employees.
This is especially the case for university students and young employees, who have been learning, interviewing, and working remotely for, in some cases, a full year.
“We barely scratched the surface of what this means for the younger generation,” Salvi said. “They have a different expectation of what it's going to be like to join the workforce and I think that's a good question for advisors to be thinking through, too.”
But RIAs can be flexible. “That’s the beauty of the independent model, you can build your business however you want it to look,” she said.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.