What Separates the Best RIAs From the Rest: Schwab

The second day of the Charles Schwab Impact 2022 conference featured a presentation on the firm's recently published RIA Benchmarking Study, given by Jerry Cobb, Charles Schwab director and business management consultant, and Jay Wampler, TD Ameritrade director and business development consultant.

As Cobb and Wampler noted, the annual benchmarking study, now published in its 16th edition, is based on a survey of more than 1,000 RIA practice leaders, with responding firms ranging in size, geography and business models. Split into two parts, the 2022 edition of the study first considers the growth and performance metrics of RIA firms before turning to a focus on compensation and staffing strategies.

As Cobb pointed out, the research suggests RIAs are thriving, despite some of the recent challenges in the U.S. and global markets. Over the past five years, the study shows, the average responding firm has doubled its assets under advisement, reaching some $545 million in average AUA as of the end of 2021. However, not all firms are growing equally, and there are some key themes separating the best from the rest.

A Strategic Growth Approach Distinguishes Top RIAs

"One finding that stands out is that organic growth hit five-year highs last year, highlighting the tremendous demand that exists for the services of RIAs," Cobb said. "Something else that stands out is that, if we look at our top-performing firm index, we see that advisors of all sizes and in all lifecycle stages are experiencing success. We see that the key to success, in turn, is embracing some critical best practices."

Cobb pointed to data showing the fastest growing firms report relying heavily on documented business development plans and specific, measurable business development initiatives. For example, one practice most fast-growing firms have in common is the development and use of an "ideal client persona" that guides their strategic decision-making.

"We see in the survey that this development of an ideal client persona helps a firm tailor its messaging and make the tough decisions about how to organize and deliver a differentiating, quality client experience," Cobb said. "Related to this point, the best firms have articulated a client value proposition that is both clearly defined and consciously communicated to prospects and clients."

According to the data, the creation of a comprehensive marketing plan that integrates these two elements and proactively communicates them to prospects and clients is invaluable for faster growth. The top firms also have documented and measurable plans for generating referrals from existing clients and significant centers of influence.

"Firms with this approach win more clients and win more assets," Cobb said. "It's very clear in the data."

Cobb said many firms in the lower performance tiers "merely rely on the work they are doing" and the force of the reputation they have established by serving clients to drive business growth. The data shows this passive growth strategy is effective to an extent, but the fastest-growing firms are doing a lot more.

"It is true that clients will stand up for you if you are doing a good job meeting their needs, but this passive approach only gets you so far in 2022," Cobb said. "To supercharge growth, RIAs need a well-defined and measurable processes for generating referrals, as well as a methodology for actively engaging with the most important centers of influence in their markets."

With respect to internal operations, Cobb said, the most successful RIAs are leaning into new digital capabilities, especially in the client onboarding and portfolio monitoring processes.

"The data suggests success on this front is about standardizing processes, efficiently managing workflows and honestly confronting and managing enterprise risk," Cobb concluded. "The top firms are investing in all of these areas to create and maintain scale. They spend substantially less time per client, annually, on their operations, and this frees up time for both client service and business development."

The Role of Compensation and Benefits

According to Wampler, other study results show the paramount importance of RIA shops taking steps to modernize and benchmark their talent acquisition and compensation strategies. At a high level, like their clients, advisory shops are having to work harder than ever to source and keep top talent.

"For the first time in our study's extensive tenure, the topic of 'recruiting new staff' has ranked as the top strategic priority for 2022," Wampler pointed out. "Up until this year, the top priority was almost always 'securing new client referrals.'"

The study shows the vast majority of RIA firms (84%) are planning to hire new talent this year, with a third of firms actively working to secure talent from competitor RIAs.

"We see evidence that the typical firm will need to source as many as six new professionals over the next five years, at least, to meet their growth trajectories," Wampler warned. "For the RIA industry as a whole, this translates to approximately 70,000 new staff needing to be hired over the next five years, and that figure doesn't even account for employee attrition, new firms coming in, staff retirements, etc."

Wampler said the talent acquisition challenge coming in the next decade will require advisory shops to have a clear and strong employee value proposition to match their client value proposition.

"To attract the best talent, you will need to have a clear message that explains what your firm offers in exchange for the skills, time and talent of your staff," Wampler said. "This employee value proposition needs to be strategically communicated. It should shine through on your website, in job postings, in the interview process and beyond."

According to Wampler, the firm's website is a major client acquisition tool, but it can also be a very powerful talent acquisition tool. Sending the right online message to potential hires is a critical first step to get new talent to engage.

Wampler said another key area for RIA leaders to study and define is the compensation strategy. The study shows compensation is what candidates value and think about the most, and at the same time, compensation costs represent about three-fourths of the typical firms' operating expenses.

"These stats together demonstrate why compensation strategies are essential to success," Wampler said. "Today, competitive organizations offer more than just a base salary. For example, an opportunity to earn equity compensation today or in the future is becoming a key currency firms are using to attract talent. This approach is about strategically retaining talent and ensuring staff have an ownership mindset."

One challenge to this approach, Wampler pointed out, is that higher firm valuations have made it hard for employees to buy into equity ownership, and so leading firms are being creative with financing strategies.

Finally, Wampler said, health care and retirement benefits remain a key part of the total compensation package.

"In 2022, you just need a greater number and a higher quality of benefit offerings to be able to compete with the best firms," he warned. "You may need to expand into nontraditional benefits, such as remote work and more flexible schedules. Financial planning support for employees and wellness benefits are other possible approaches, and you can also provide ways to help employees live their values in the workplace, such as making matching charitable contributions or giving time off for volunteering."