Schwab’s RIA Compensation Report reflects responses from Schwab’s annual RIA Benchmarking Study, and offers a comprehensive look at compensation practices in the independent financial advice industry in 2018.

A study of 984 US wealth management firms in 2018 showed that more than a quarter (27 per cent) of senior client account manager and RM compensation is tied to revenue and almost half (46 per cent) are owners of their firms in some way.

The Schwab RIA Compensation Report, which is an addendum to the previously reported RIA Benchmarking Study from Charles Schwab, sheds light on how advisors are paid and what their incentives are. 

The study showed that base salaries for client account management, sales and marketing roles ranged from $57,000 to $146,000 at the median; total cash compensation ranged from $62,000 to $203,000 at the median.

More than 60 per cent of all investment roles receive performance-based pay. Some 85 per cent of portfolio administrators collect performance-based incentive pay, followed by 83 per cent of para-planners, 81 per cent of traders, 77 per cent of research analysts, 68 per cent of financial planners, and 61 per cent of investment/portfolio managers.

One-third (33 per cent) of investment/portfolio managers and 14 per cent of financial planners have some degree of firm ownership. Almost a quarter (24 per cent) of financial planners have 50 per cent or more ownership in their firms, while 17 per cent of investment/portfolio managers have 50 per cent or more ownership.

The report noted that many recruit from other RIA firms, highlighting the need for a strong compensation strategy. The study showed that 76 per cent of firms plan to hire from external sources in the next 12 months and 42 per cent of firms recruited from other RIA firms in 2018. The study also revealed that 73 per cent of firms which recruit staff from RIAs share equity with non-founders.

Among other findings, about 29 per cent of firms reward staff for the revenue they bring from new and existing clients. Health benefits are important, particularly at the larger firms (those with $1.0 billion or more in assets under management). With such firms, 99 per cent offer medical insurance. For firms with ($100 million to $250 million AuM), 77 per cent of such firms do so.

As far as succession planning is concerned – a hot-button topic in the North American wealth management industry – more than 90 per cent of firms said that they are considering internal succession.

Working ownership levels remain fairly steady compared with results tracked in 2014. Working owners as a share of total staff stood at 22 per cent in 2018, against 20 per cent in 2014 for the largest firms. Percentages are higher in medium-sized and smaller firms.