A new report from Schwab on recruiting and retaining wealth advisors sheds a sharp spotlight on the challenges that firms face now and in the future.

If you thought keeping and attracting talent is hard now, it’s only going to get worse, according to Schwab’s latest RIA Benchmarking Study.

Based on historical growth rates and the number of RIAs, advisory firms will need to hire more than 70,000 new staff over the next five years without accounting for attrition, retirements or new firms, the study found.

“RIAs continue to see a high demand for talent with increased growth,” said Lisa Salvi, managing director of business consulting and education at Schwab Advisor Services. “Firms will need to quickly hire to meet the demands of the industry.”

Median RIAs will have to hire four new roles over the next five years, and what Schwab calls “top performing” firms will need to hire seven new roles, Schwab reported. And for the first time in the history of the study, developing staff capabilities and skills to retain key employees ranked as a top five strategic priority for RIAs.

What’s your EVP?
A documented “employee value proposition” (EVP) that details the firms’ comprehensive offerings to staff is “essential to attract and retain talent,” the study stated, noting that 60 per cent of top performing firms have a value proposition in place.

A compelling work setting and an emphasis on teamwork, recognition and connections are the most common elements in EVPs offered by RIAs, followed by financial rewards beyond base salary, corporate culture and values and career progression opportunities.

“We’ve also seen that having a documented career path in place is a successful strategy when looking to bring on new talent,” said Salvi, who helped author the study. “They help prospects understand career growth opportunities at the firm and how they will grow in their role.”

Personal and professional networks are the most commonly used recruiting channel used by RIAs (51 per cent), the study reported, followed by colleges and universities (36 per cent), other RIAs (32 per cent) and non-financial professional service firms (20 per cent).

Demand for talent is also propelling non-organic growth through mergers and acquisitions, according to the study.

“There’s an interesting intersection between the focus on inorganic growth and talent,” Salvi told FWR. “Some of the bigger shifts that we’ve seen is a large focus on talent acquisition as a driver of M&A.”

Incentives
As competition for talent heats up, RIAs are also expanding their compensation packages and incentive offerings.

Using industry benchmarks, competitive compensation and benefits are table stakes. RIAs must also consider offering flexible work schedules; hybrid or remote work options; paid time off for community or philanthropic projects; recreational perks inside or outside the office; and a commitment to a healthy work-life balance.

As for incentives, advisors making a lateral move five years ago usually received a 10 per cent pay raise from a new employer, according to executive search firm executives. Today, the incentive to move is likely to mean a 20 per cent to 25 per cent bump in compensation. 

To lure top advisors to Americana Partners in Houston, Texas, has offered 45 per cent of the revenue the advisor brings in as an incentive payout. “If you hire the best, you can pay them more,” American Partners' CEO Jason Fertitta told Barron’s Advisor. “Math dictates the path.”

While the standard incentive offering for employees is an annual cash bonus plan, consultant Carolyn Armitage has urged the industry to present a package including insurance benefits, paid time off, voluntary time off, flexible hours and work from home benefits.

Equity, recruiting and retention
Ownership stakes have become an increasingly popular incentive to entice experienced and productive advisors to join firms. Drawbacks include dilution of shares and the risk of awarding shares immediately to an external candidate who is untested at the firm. Some firms wait at least one year before offering equity.

Internal development programs are also on the rise.

Competitive firms are offering summer internships to identify talent; training and coaching for novice advisors; and mentorships and educational opportunities to obtain industry credentials.

Recruiting is intensifying as well.

Wealth management firms are casting a wide net to identify colleges and universities locally and nationally, going to on-campus career fairs, posting descriptions of job openings and internships, talking to students, and offering to guest lecture at a finance or economics class. 

To recruit experienced advisors, firms are using executive recruiters, LinkedIn, centers of influence and third-party affiliates that the firm works with, such as custodians and platform providers.

To retain talent, industry experts say comprehensive performance reviews, clear career paths and advancement opportunities for employees are critical. Awarding promotions regularly, engaging employees in decision-making when possible and enhancing firm culture with social events are also key, experts say.

Beyond the comfort zone
And as the need for new advisors grows, firms are being urged to look beyond traditional hires.

According to the CFP board, three-quarters of certified financial planners are men, 82 per cent are white and 94 per cent are 30 or older. Only 2 per cent are black, 3 per cent are Hispanic and 4 per cent are Asian.

Diversifying the workforce is “not just a moral decision, it’s a good business decision,” said Sharyl Rowling, a practice management specialist at Morningstar. “A more diverse workforce means you can attract a more diverse clientele. The more someone identifies with an advisor, the more likely they are to become a client.”