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New RIA Compensation Data From Schwab Advisor Services Provides Insight Into How Firms Attract and Retain Top Talent

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According to new independent registered investment advisor (RIA) compensation data from Schwab Advisor Services, there are three major tenets to attracting and retaining quality employees across all levels at RIA firms: aligning compensation plans with business strategies, incorporating more than just base salary into compensation plans, and creating a path to equity partnership for key employees. Compensation accounts for approximately three-quarters of firms’ total expenses, therefore a strategic and competitive compensation structure is vital to help firms grow and remain competitive. To help advisors better understand the landscape and structure plans that align with their business goals, Schwab incorporated compensation questions into the 2014 RIA Benchmarking Study. The resulting data represents the largest study of its kind in the RIA industry with responses from nearly 900 firms, representing nearly 8,000 jobs across 21 roles typically found at RIA firms.

“We know from this year’s Benchmarking Study that more than one-third of participating firms doubled their assets under management (AUM) and revenues since 2009, which shows remarkable growth and illustrates the strength and maturation of the RIA model,” says Nick Georgis, vice president, Schwab Advisor Services. “With this growth we see increasing competition for talent. In fact, 50 percent of new hires in 2013 left one RIA firm to join another. It’s therefore vitally important for firms to develop well-planned and cost-effective ways to incentivize top-tier employees to join and remain in their ranks. The most successful firms are doing this by establishing operational discipline to manage the growth of their business, and part of that discipline includes sharpening their compensation philosophies.”

Three key strategies for attracting and retaining top talent at an RIA firm include:

Connecting compensation to business strategy

High-performing firms excel at designing compensation plans that align with business strategy. By linking compensation to performance goals, employees are more likely to be motivated to strive for increased productivity and greater firm-wide profits. Regular performance evaluations can be used to reinforce goals, track career development, and reconfirm that compensation plans are aligned with the firm’s strategic goals.

Offering compensation beyond base salary

While base salary is expected for job performance, attractive compensation plans include additional incentives such as benefits packages, non-cash compensation, and a formal path to partnership, which link a firm’s strategic goals with employee behavior. Schwab’s compensation data showed that base salary accounted for 88 percent of total cash compensation in 2013, but more than nine out of ten (91%) employees received a form of incentive compensation. Medical insurance is offered by 80 percent of firms, while 46 percent of firms in the Study provide employees with dental insurance. Other benefits, such as long-term disability and fully paid maternity/paternity leave, are also provided by nearly half of firms.

Integrating key employees into the ownership or partnership structure

Creating a path to ownership is viewed in many firms as essential to establishing a sustainable business. By expanding the number of equity partners, RIA founders and principals share the responsibilities for the health of the business, which often leads to greater long-term growth. The data illustrates that larger firms are more inclined to develop a formal path to partnership. In 2013, nearly a third (32%) of firms with over $1 billion in assets added new equity owners, while only 8% of firms under $250 million in assets added new owners.

“Talent management is an essential focus for firms, especially as founders and principals look to develop the next generation of leaders and build enduring enterprises,” said Georgis. “Competitive and comprehensive compensation packages, along with clear paths to partnership help ensure retention of employees within a highly competitive talent environment, setting up firms for success now and into the future.”

For additional detail about the compensation data from the 2014 RIA Benchmarking Study, an infographic is available for download here.

About the RIA Benchmarking Study

Schwab designed this Study to capture insights in the RIA industry, based on survey responses from individual firms. The 2014 study provides information on topics such as asset and revenue growth, sources of new clients, products and pricing, staffing, compensation, marketing, technology, and financial performance. A total of 1,132 advisory firms representing three-quarters of a trillion dollars in AUM that custody their assets with Schwab participated this year, making this the leading study in the RIA industry.

The RIA Benchmarking Study comprises self-reported data from advisory firms that custody their assets with Schwab. Schwab did not independently verify the self-reported information. Participant firms represent various sizes and business models. The 2014 RIA Benchmarking Study collected detailed compensation information from nearly 900 advisory firms representing nearly 8,000 employees across 21 roles typically found at RIA firms.

Compensation details for each role are reported with base salary, additional compensation (incentive compensation and compensation tied to revenue), and total cash compensation independently. Total cash compensation is calculated as the median of the total cash compensation reported for each response (base salary plus additional compensation) and not as the sum of the medians of base salary and additional compensation (incentive compensation and compensation tied to revenue.) Base salary and additional pay are representative of only those positions reporting pay for that compensation component.

The Study is part of Schwab’s Business Consulting Services, a practice management offering for RIAs. Grounded in the best practices of leading independent advisory firms, Business Consulting Services provides insight, guidance, tools, and resources to help RIAs strategically manage and grow their firm.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube, LinkedIn and our Schwab Talk blog.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE:SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

Schwab Advisor ServicesTM serves independent investment advisors and includes the custody, trading, and support of Schwab. Independent investment advisors are not owned by, affiliated with or supervised by Schwab.

(c)2014 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC.

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