Several RIA Trends Are Driving
Rising Compensation: Schwab
The median RIA firm recently had about $458 million in assets andeight employees — more than double theasset level of $221 million in 2014, whenthe median RIA had five employees,according to a report by Charles Schwab.
“That’s a very big change for theculture of a small business,” Lisa Salvi,RIA Compensation Report.
Projecting five years out,Schwab expects the medianRIA firm to have $705 millionin assets and 10 staff members, assuming the same 9%compound annual mediangrowth rate.
Of course, this growth entailshigher spending. Compensation costs forRIAs with over $250 million in assets represented about 74% of expenses in 2019,up from 72% in 2018, Schwab says.
The new report, a companion toSchwab’s 2020 Benchmarking Study,also found that competition for talent isgrowing — as 75% of firms hired staff in2019 and 39% of firms recruited employees from other RIAs.
Nearly 80% of RIA firms participating in the study did so after theCOVID- 19 pandemic started. Therefore,while the survey they responded to wasfocused on 2019, the pandemic couldhave impacted respondents’ answers toquestions about the future, Salvi noted.
HOW MUCH DO RIA EMPLOYEES
Over three-quarters (77%) of RIA firms
compensated staff with performance-
based incentive pay in 2019, the report
states. Median total cash compensation
across all roles increased 4% from 2018
Base salaries for client account management, sales and marketing rolesat RIA firms ranged from $60,000 to$150,000 at the median. Total cashcompensation, meanwhile, ranged from$64,000 to $204,000. This range was$64,000 to $240,000 when owner profitdistributions were included.
The majority of staff in client-accountmanagement, sales and marketing rolesreceived performance-based incentivepay. Nearly a quarter (24%) of seniorclient-account managers and relationship managers had compensation tiedto revenue, and close to half (49%) hadsome level of ownership in the firm,more than any other non-executivemanagement role.
Base salaries for investment rolesat RIA firms, meanwhile, ranged from$60,000 to $125,000 at the median,Schwab’s study finds. Total cash compensation ranged from $65,000 to $160,000at the median, while total cash compensation including owner profit distributions ranged from $65,000 to $170,000.
More than 55% of all investment roles
BEST PRACTICES FOR
received performance-based pay, the
report notes. Eighty percent of para-
planners collected performance-based
incentive pay, followed by 78% of port-
folio administrators, 76% of traders, 73%
of research analysts, 72% of financial
planners and 55% of investment and
Almost one-third (31%) of investment
and portfolio managers and 13% of finan-
cial planners had some degree of firm
ownership. In comparison, more than a
quarter (26%) of financial planners had
50% or more ownership in their firms,
while 17% of investment and portfolio
managers had 50% or more ownership.
Also, more RIA firms are adding
client teams and specialized roles to
support strategic firm growth and
deliver exceptional client experiences,
the study finds.
When it comes to compen-
sation, RIA firms should fol-
low the these best practices,
according to Jerry Cobb, a
senior business management
consultant at Schwab:
• Develop a strategic plan;
•Create a “compensation philoso-
phy” on how employees at your firm
are paid and “what they are paid
• “Don’t guess” — instead, “get your
hands on reliable data to create your
Technology is another factor influ-
encing compensation, Cobb said. “Our
industry is undergoing a massive tech-
nology revolution that we’re only in
the beginning stages of, … and that is
generating increases in productivity that
are also reflected in the compensation
increases” of RIA firms, he said.
A total of 761 firms participated inthe compensation portion of the studyin 2020, representing three-quarters ofthose who participated in the overallstudy ( 1,010 firms), Schwab said.
Bernice Napach can be reached email@example.com. Jeff Berman can bereached at firstname.lastname@example.org.
Schwab expects the median
RIA firm to have $705
million in assets and 10 staff
members, assuming the same
9% compound annual median