Top Performing Advisories More Focused on Inclusion

Fostering an inclusive workplace that recognizes and values diverse backgrounds, ideas, perspectives and experiences is becoming increasingly crucial for attracting talent in financial advisement, especially among younger generations, according to the Charles Schwab Corp.

Registered investment advisories Schwab labeled “top-performing” were more likely (64%) to have a commitment to inclusiveness in the workplace than overall survey respondents (56%), according to Schwab Advisor Services’ “2023 RIA Compensation Report,” released on Thursday. “Top performing” firms were defined as those in the top 20% of Schwab’s Firm Performance Index, which considers 15 measures, including staff attrition.

“Cultivating an inclusive workplace that values different backgrounds, ideas, perspectives, and experiences is important to attracting talent—especially younger generations—and can help drive firm impact, innovation, and performance,” Schwab analysts wrote in the annual report. “A more diverse workplace can also help firms appeal to a broader range of potential clients as investor demographics shift with the makeup of the U.S. population.”

The study did not provide data on adviser diversity by race or ethnicity.

Schwab did note gender diversity, with an overall split of 54% male to 45% female advisers. However, a significant gender gap exists among working owners, with a split of 76% male and 24% female.

The survey also found diversity in demographics, with the younger workforce (those younger than 40) making up 46% of staff. Meanwhile, 22% fell within the 40 to 49 age group, and 32% were at least 50. The influx of young professionals is notable, as more than one-third of firms reported actively recruiting directly from colleges and universities, the highest observed rate in the study’s history, according to Schwab.

The results may be heartening for an industry undergoing widespread consolidation of both wealth and retirement plan advisers, in part due to firms seeking succession options.

“Part of [the young worker growth]  can be attributed to not only the potential compensation opportunities with this type of career, but firms having a clear employee value proposition in place that shows career pathing, and benefits that are offered beyond health insurance and retirement. We call it the give/get pact. It’s what you give to your employees to attract and keep them,” Lisa Salvi, managing director of Business Consulting and Education, says via email. “Another critical part of attracting younger talent is just awareness and education. Exposing young talent to and promoting financial planning as a career path.”

Talent Recruitment

As firms grow, they typically introduce new roles for every $300,000 in revenue, including the establishment of dedicated client service teams, specialized operational and investment roles, and executive management positions, according to Schwab. To attract a diverse pool of candidates, firms utilize various recruitment channels, including personal or professional networks (56%), registered investment advisers (27%), non-financial professional services firms (21%), banks or trusts (17%), independent broker/dealers (12%) and wirehouses (12%).

In 2023, 75% of firms hired new staff, with the median firm anticipating the need to hire four new roles over the next five years. In contrast, top performing firms are projected to hire eight new roles on average during the same period.

Recruitment of new staff ranks as the second-highest strategic priority for advisories, with three-quarters of firms expressing their intention to hire in 2024. Concurrently, the development of existing staff has risen to the sixth-highest strategic priority over the past two years, the survey found.

Career Path Focus

Nearly 80% of firms classified as “top performing” by Schwab provided career path/progression opportunities and allocated an average of $2,200 per professional staff member in 2022 for training, education and professional dues. Compensation packages remained a significant factor for candidates, with total cash compensation across the 27 roles surveyed experiencing a 17% increase at the median firm since 2018.

Most top performing firms have also embraced an employee value proposition, with more than 80% incorporating their mission statement, culture and values within the EVP framework. According to the report, “An EVP is the Give/Get pact between employee-employer and explains what a firm offers its employees in return for the skills, capabilities, and experiences they bring. It includes elements that appeal to both the head and the heart.”

Schwab’s report drew responses from 1,044 advisory firms participating in the compensation section of the 2023 study. Data was collected on more than 14,500 employees across 27 roles typically found at RIAs.