Compensation costs make up nearly three-quarters (74%) of the typical RIA firm’s expenses, and median cash compensation at RIA firms grew by about 4% in 2019 according to a newly released report from Charles Schwab.
Schwab’s RIA Compensation Report, released as a companion piece to Schwab’s wide-ranging RIA Benchmarking Study, reflects compensation practices in the independent financial services industry in 2019. More than 760 firms participated in the compensation portion of the RIA Benchmarking Study, considered the leading such study in the industry. Fielded from January to early April 2020, the study contains self-reported data from 1,010 firms that custody their assets with Schwab Advisor Services and represent $1.1 trillion in AUM.
The report also makes clear that hiring away talent from other RIA firms is a primary recruiting practice. Nearly four in 10 firms (39%) recruit from other RIA firms, emphasizing the need for a compelling compensation strategy and employee value proposition. Other top recruitment channels in 2019 were colleges and universities (33%), banks or trusts (16%), wirehouses (12%) and independent broker-dealers (10%).
Over three-quarters (77%) of RIA firms report they compensated staff with performance-based incentive pay in 2019. Base salary made up 81% of total cash compensation in 2019 across all roles, with marked differences between revenue-generating roles (70%) and non-revenue-generating roles (90%).
The report also noted that firms are increasingly adding client team and specialized roles to support strategic firm growth and deliver exceptional client experiences.
The majority of client account management, sales, and marketing roles receive performance-based incentive pay.
Nearly a quarter (24%) of Senior Client Account Managers/Relationship Managers have compensation tied to revenue and 49% have some degree of firm ownership‒more than any other non-executive management role.
Base salaries for client account management, sales, and marketing roles ranged from $60,000-$150,000 at the median.
Total cash compensation ranged from $64,000-$204,000 at the median. Total cash compensation, including owner profit distributions, ranged from $64,000-$240,000 at the median.
Base salaries for investments roles ranged from $60,000-$125,000 at the median. Total cash compensation ranged from $65,000-$160,000 at the median. Total cash compensation, including owner profit distributions, ranged from $65,000-$170,000.
More than 55% of all investments roles receive performance-based pay. Eighty percent of Paraplanners collect performance-based incentive pay, followed by 78% of Portfolio Administrators, 76% of Traders, 73% of Research Analysts, 72% of Financial Planners, and 55% of Investment/Portfolio Managers.
Nearly one-third (31%) of Investment/Portfolio managers and 13% of Financial Planners have some degree of firm ownership. Over a quarter (26%) of Financial Planners have 50% or more ownership in their firms, while 17% of Investment/Portfolio Managers have 50% or more ownership.