There are three major tenets to attracting and retaining employees across all levels at RIA firms, according to new data from Schwab Advisor Services.

As competition for top talent in the RIA space intensifies, fresh insight from Schwab Advisor Services has reaffirmed the importance of offering employees a strategic and competitive compensation plan.

The firm said there are three “major tenets” to attracting and retaining employees across all levels at RIA firms. They are: 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 nearly three-quarters of RIA firms’ total expenses, so a “strategic and competitive compensation structure is vital” to grow and remain competitive, according to Schwab's 2014 RIA Benchmarking Study.

Schwab said it incorporated compensation questions into the 2014 RIA Benchmarking Study, which came out in July. The findings relate to responses from nearly 900 firms representing around 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,” said Nick Georgis, vice president at Schwab Advisor Services.

“With this growth we see increasing competition for talent,” Georgis said, noting that half 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,” he said. “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.”

Schwab's latest insights resonate with the findings of a study by the executive search firm Kathy Freeman Company in February, which showed that equity ownership contributes to career satisfaction more so today than previously. Interestingly, 62 per cent of those surveyed said they would consider taking less cash for an equity stake. The report recommended that employers discuss the availability of equity or initiate profit-sharing plans as a component of their firm’s retention plan (see more here).

Strategies

Schwab highlighted how linking compensation to performance goals breeds motivation among employees to strive for higher productivity.

“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,” Schwab said.

Besides base salary, “attractive” compensation plans tend to include incentives such as benefits packages, non-cash compensation and a formal path to partnership mirroring a firm’s strategic goals with employee behavior.

Schwab said it found that base salary accounted for 88 per cent of total cash compensation in 2013, while more than nine out of ten (91 per cent) employees received a form of “incentive compensation.” Medical insurance was offered by 80 per cent of firms, while 46 per cent of firms provided employees with dental insurance. Other benefits included long-term disability while fully paid maternity/paternity leave were also provided by nearly half of firms.

Meanwhile, creating a path to ownership was regarded as essential by many firms 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,” Schwab said.

It emerged that larger firms are more inclined to develop a formal path to partnership, with nearly a third (32 per cent per cent) of firms with over $1 billion in assets having added new equity owners in 2013, compared to 9 per cent of firms with under $250 million in assets added.