Page 25 - Investment Advisor April 2021

Several RIA Trends Are Driving of research analysts, 72% of financial
planners and 55% of investment and
Rising Compensation: Schwab portfolio managers.
Almost one-third (31%) of investment
and portfolio managers and 13% of finan-
he median RIA firm recently had across all roles increased 4% from 2018 cial planners had some degree of firm
Tabout $458 million in assets and to 2019. ownership. In comparison, more than a
eight employees — more than double the Base salaries for client account man- quarter (26%) of financial planners had
asset level of $221 million in 2014, when agement, sales and marketing roles 50% or more ownership in their firms,
the median RIA had five employees, at RIA firms ranged from $60,000 to while 17% of investment and portfolio
according to a report by Charles Schwab. $150,000 at the median. Total cash managers had 50% or more ownership.
“That’s a very big change for the compensation, meanwhile, ranged from Also, more RIA firms are adding
culture of a small business,” Lisa Salvi, $64,000 to $204,000. This range was client teams and specialized roles to
vice president of Business Consulting & $64,000 to $240,000 when owner profit support strategic firm growth and
Education at Schwab, said recently during distributions were included. deliver exceptional client experiences,
a virtual online panel highlighting the study finds.
the findings of the firm’s latest Schwab expects the median
RIA Compensation Report. RIA firm to have $705 BEST PRACTICES FOR
Projecting five years out, COMPENSATION
Schwab expects the median million in assets and 10 staff When it comes to compen-
RIA firm to have $705 million sation, RIA firms should fol-
in assets and 10 staff mem- members, assuming the same low the these best practices,
bers, assuming the same 9% 9% compound annual median according to Jerry Cobb, a
compound annual median senior business management
growth rate. growth rate. consultant at Schwab:
Of course, this growth entails • Develop a strategic plan;
higher spending. Compensation costs for The majority of staff in client-account • Create a “compensation philoso-
RIAs with over $250 million in assets rep- management, sales and marketing roles phy” on how employees at your firm
resented about 74% of expenses in 2019, received performance-based incentive are paid and “what they are paid
up from 72% in 2018, Schwab says. pay. Nearly a quarter (24%) of senior for;” and
The new report, a companion to client-account managers and relation- • “Don’t guess” — instead, “get your
Schwab’s 2020 Benchmarking Study, ship managers had compensation tied hands on reliable data to create your
also found that competition for talent is to revenue, and close to half (49%) had comp plan.”
growing — as 75% of firms hired staff in some level of ownership in the firm, Technology is another factor influ-
2019 and 39% of firms recruited employ- more than any other non-executive encing compensation, Cobb said. “Our
ees from other RIAs. management role. industry is undergoing a massive tech-
Nearly 80% of RIA firms partici- Base salaries for investment roles nology revolution that we’re only in
pating in the study did so after the at RIA firms, meanwhile, ranged from the beginning stages of, … and that is
COVID-19 pandemic started. Therefore, $60,000 to $125,000 at the median, generating increases in productivity that
while the survey they responded to was Schwab’s study finds. Total cash compen- are also reflected in the compensation
focused on 2019, the pandemic could sation ranged from $65,000 to $160,000 increases” of RIA firms, he said.
have impacted respondents’ answers to at the median, while total cash compen- A total of 761 firms participated in
questions about the future, Salvi noted. sation including owner profit distribu- the compensation portion of the study
tions ranged from $65,000 to $170,000. in 2020, representing three-quarters of
HOW MUCH DO RIA EMPLOYEES More than 55% of all investment roles those who participated in the overall
GET PAID? received performance-based pay, the study (1,010 firms), Schwab said.
Over three-quarters (77%) of RIA firms report notes. Eighty percent of para-
compensated staff with performance- planners collected performance-based Bernice Napach can be reached at
based incentive pay in 2019, the report incentive pay, followed by 78% of port- [email protected]. Jeff Berman can be
states. Median total cash compensation folio administrators, 76% of traders, 73% reached at [email protected].

APRIL 2021 INVESTMENT ADVISOR 23