Unemployment in the U.S. is at its lowest level in more than 50 years. According to some estimates, there are currently two job openings for every unemployed American. And like most industries, the advisory space is feeling the current labor crunch. Through our own conversations, RIA firms have expressed concerns about wage pressure, high turnover, difficulty finding talent and benefits packages.
To find out more, Advisor Growth Strategies conducted a compensation trends survey in the fourth quarter 2022 as a “pulse check” on how RIA firms are dealing with issues around hiring and compensation.
Among the most interesting findings was that RIAs are increasingly challenged to fill less experienced and more portable roles, such as operations or client service associates. Historically, those jobs have had high turnover but were also pretty easy to fill. Some respondents said that in the past they might have had 60-plus applicants for one of those positions, whereas lately, they have seen as few as three. The shortage of applicants combined with rising inflation has put upward pressure on wages, meaning that jobs at the low end of the scale that might have had a salary range of $40,000 to 45,000 are now being offered $15,000 or more above that. This incremental change can add an exponential fixed cost to an RIA’s largest expense category.
Attracting the best team members these days goes beyond salary. In addition to competitive cash compensation, there has to be a strong benefits package, including enough time off. A good benefits package is also important in retaining the talent you already have.
Firms need to address hiring and retention with serious intention. It’s no longer just about how you pay people; it’s about the entire work experience you deliver. It’s the compensation and benefits package, how you engage, what kind of flexibility you provide and what kind of work/life balance you make possible.
What the Labor Market Wants
The rising cost of healthcare is a major concern for most workers. Survey results showed that more than two-thirds of firms contribute to family/dependent premiums, 59% cover partial employee benefits and 29% cover 100% of employee benefits. Paid time off is another important benefit, and unlimited time off is being increasingly offered. Twenty-nine percent of firms are offering this benefit to all employees, while 18% of firms are offering this to exempt employees. Dental and vision coverage is also offered at more than three-fourths of firms.
When it comes to 401(k) plans, 94% of firms match employee contributions, and 29% of firms add profit-sharing into 401(k)s on top of matching. Free or discounted planning/investment management services are also offered as an in-kind benefit for their employees and their families at 29% of firms.
Parental leave policies are still being developed at many firms, with 29% of firms indicating they have no policy. Of those that do have policies, 18% offer two weeks of paid leave for either parent. For firms with more generous policies, paid birth parent leave can range from eight weeks to six months. Most firms also offer the option of extending unpaid leave.
What’s working in attracting and retaining the best people is offering flexibility and a hybrid work environment, combined with proactive raises to account for inflation. In addition to a competitive salary, employees are also looking for opportunities for growth such as peer-to-peer training, and a comprehensive benefits package that includes parental leave, insurance and fringe benefits.
Rethink What Works
In today’s tight labor market, a firm has to pay up to get good talent in the door and then train and develop them. If you don’t have a thesis on growth and progression, you’re going to be in an awkward spot.
These human resource problems are not unique to RIAs or the financial services industry. No one wants to pay top dollar for recent college grads because they have minimal experience, and there could be a learning curve. But in two or three years, when they have some experience under their belts, another firm is going to be willing to pay them more to take advantage of the investment that has been made in that individual’s professional development. If there isn’t an opportunity for a promotion and raise at their current firm, it becomes attractive to leave and get perhaps as much as a 20% bump in salary. The firms where we see the lowest turnover rates are the ones that demonstrate a career path for new hires and compensation increases that reflect their progression.
What no longer works in attracting the best workers are new hire offers at the low end of benchmark ranges, limited financial incentives or opportunities to earn bonuses, and a “trust me” on career development. Employees today want to know they will have opportunities for personal and professional growth with matching compensation.
In order to be successful in today’s competitive labor market, firms should be committed to investing in their team through development programs, compensation and benefits packages, and ongoing feedback. Granted, there may be some short-term negative profitability impact, but it is a worthwhile investment considering the impacts to long-term growth, earnings and valuation. Turnover can be costly and limit options for the future. There’s no doubt that it is beneficial to invest in talent in a way that makes people who understand your clients and your process want to stay with the firm longer.
Brandon Kawal is a principal and Rebecca Daves a consultant at Advisor Growth Strategies, a management consulting and transaction advisory firm.