Financial Advisor Pay Has Jumped 17% Since 2019, Schwab Says -- Barrons.com

By Kenneth Corbin

Competition for talent among registered investment advisors is fierce, and Charles Schwab identifies three core areas in what it calls the employee value proposition: compensation; benefits; and the firm's mission, culture, and values.

For many advisors, if not nearly all, compensation is the most important of those components, and RIAs have been taking note.

From 2019 through 2023, median cash compensation for advisors has increased 17%, according to Schwab's 2024 RIA compensation report.

That means that advisors fared considerably better than the average U.S. worker during that time. From 2019 to 2023, median earnings for male U.S. workers dropped 1.7%, according to Census Bureau data. Over the same period, female U.S. workers saw annual earnings drop 1.2%.

Base salary accounts for 79% of a typical advisor's cash compensation package. The other components are performance-based incentive pay (10%), owner profit distributions (7%), and compensation tied to revenue generation (4%). Seventy-seven percent of the RIAs Schwab polled offered performance-based incentive pay in 2023.

Although Schwab operates a large brokerage firm and has its own wealth management offering, it also serves as the largest custodian in the U.S. to independent RIAs, safeguarding their clients' assets. As part of that business, Schwab conducts research into topics of importance to advisors.

In the RIA sector, many firms offer equity stakes in their businesses, which can be a potent recruiting tool while also aligning individual advisors' incentives with those of their firms. At the median firm in Schwab's survey, one in three staffers is an equity owner. Among firms with $5 billion or more in assets under management, two-thirds offered equity stakes to advisors who joined with a book of business in 2023.

Schwab also advises founders who are considering the next phase of their business to begin thinking about offering equity stakes to more employees to create "an environment that drives firm value and growth."

"Founders who wish to reap the full financial benefits of the enterprise value they've built do well to begin including additional equity owners proactively rather than waiting until later in their businesses' life cycles," Schwab says in its report.

On the benefits side, Schwab describes traditional benefits such as health insurance as "table stakes," noting that in their pursuit of top talent firms increasingly are offering more novel perks. Three-quarters of the firms Schwab surveyed offer hybrid or remote work, for instance, and 70% say they offer flexible work schedules.

"Nontraditional benefits can be a differentiator," Schwab says in its report, finding that 63% of firms offer investment management or financial-planning services for their employees, and 36% offer paid time off for community service or volunteer work.

A firm's culture, as often expressed in a mission statement, can be a little harder to pin down, but Schwab stresses the importance of communicating a firm's values to help attract and retain advisors who are a good match. Among top-performing firms polled in Schwab's survey, 86% articulate statements of mission, culture, and values in their recruiting efforts, and across the board, firms that did so saw lower attrition last year.

"This year's compensation report underscores what we already know: Talent is a firm's most important asset -- a trend that shows no signs of slowing down," says Lisa Salvi, managing director of business consulting and education at Charles Schwab Advisor Services. "As RIA leaders refine their employee value propositions and offer performance-based incentives and equity opportunities, they're focused on attracting, inspiring, and retaining the brightest minds in the industry."

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December 19, 2024 14:36 ET (19:36 GMT)

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