Hi, everyone. I’m Lisa Salvi with Schwab Advisor Services and this is Schwab @Home.
Today, I’m joined by my colleague, Jerry Cobb, to talk about one of the top topics on everyone’s mind right now, and that’s talent and compensation strategy.
We’re going to share some findings from our 2021 RIA Benchmarking and RIA Benchmarking Compensation studies, as well as best practices from working with advisory firms.
So, Jerry, thank you so much for being here with me today.
Yeah, great to be here, Lisa. Thanks.
So you and I have talked about this a lot, but this is absolutely one of the most unusual and the tightest labor markets we’ve ever seen. There’s huge competition for talent.
We know from our Benchmarking Study that the number two top strategic priority for all firms is bringing on talent to support firm growth, and that’s the highest we’ve ever seen that answer come in, in 15 years of fielding that study. We also know there’s a tremendous amount of growth for advisory firms and that in order to keep up with that growth, the median firm is going to need to hire six new roles over the next five years, and that doesn’t even take into account hiring due to attrition. So, clearly, there’s a lot of pressures on advisory firms and talent is really important.
Jerry, would you just start right at the beginning? How does a firm know it’s time to bring on a new team member and what are some of the key considerations they need to take into account as they do so?
Yeah, great question, Lisa. I think a lot of firms are developing a good qualitative sense of when they need to add an additional role, kind of when they feel like their offering is beginning to suffer because they’re running a little too lean. Beyond that, firms look at specific performance metrics. A general rule of thumb that we’ve seen is firms adding a new role for every $325,000 in additional revenue. And beyond that, I think I would just say that top performing firms are really thinking about hiring in advance of the need, just given the competitive nature of the talent market we’re in right now.
Yeah, hiring ahead really does seem to be more important than it used to be, and sourcing at all times also.
So if a firm now knows that it’s time to bring someone on, what are some of the things that you think they should really be taking into account as they set that talent and compensation strategy to be competitive in today’s market?
The first thing is exactly what you just said, having a strategy. Firms that are really hoping to grow and succeed in this talent market we’re in right now are getting very specific and intentional about having a human capital strategy, something that really documents and lays out how they’re going to recruit and retain, develop and advance their people.
Additionally, firms are looking at really creating a value proposition for their employees, much like they have a compelling value proposition for their clients. Something that really lays out what an employee gets for their time and talent, beyond just pay and benefits, you know, the additional opportunities and impact that the role can have, career paths, etc.
Secondly, I think firms are looking at using equity compensation more and more as a kind of currency to attract top talent. So, really, developing a clear equity ownership and sharing strategy is key.
And then, thirdly, workplace flexibility, I think is a must-have in any good human capital strategy. I mean, after the last couple of years that we’ve been through firms are looking at all kinds of ways to make hybrid work scenarios possible, remote work options available, and even redefining roles in creative and innovative ways. I was just working with an advisor recently who described what he called the teacher model for a client service associate position that they have attached to their tax practice. This is a role that gets very busy around tax season and the end of the year, but slows down during the summer. So they reasoned that if they offered reduced pay and the entire summer off, much like a teacher, that they could acquire some talented people for the role, and so that’s what they did.
So we’re seeing these kinds of innovations and creativity that firms are looking at. So those are some of the key things that I’m seeing out there.
Great list. I love that teacher model. It’s so creative.
I would maybe add just more one more to your list, and that’s incentive-based compensation. We know that three out of four firms use that today but the ones that are really standing out are taking the time to link that strategy to their strategic plan. They make it transparent, they talk about it with their employees, and each person really knows exactly what outcomes they need to achieve to participate in that incentive-based compensation.
This time absolutely flew by. Thank you, Jerry, for being here with me today. I think it’s really clear talent is the differentiator of the future. We appreciate everyone spending a few minutes of your day with us. Thank you again.
On behalf of Schwab Advisor Services, I’m Lisa Salvi and this has been another addition of Schwab @Home.