Of the more than 150 financial advisers attending the Fidelity Inside Track Conference this week, 68% said that they plan to add an adviser within the next year.
Given that growth spurt, compensation has become a key issue when it comes to maintaining a competitive advantage, Waldemar Kohl, a vice president of Fidelity Institutional Wealth Services, said during a keynote speech Tuesday at the conference.
"When it comes to driving attraction, compensation is huge," he said.
With the industry facing a shortage of new advisers, rising costs to retain existing advisers and a need to grow firms to remain competitive, compensation is becoming a key factor of business growth among registered investment advisers.
The median cost per lead adviser has grown to $174,000 this year from $165,000 in 2009, according to figures that Mr. Kohl presented during his speech.
And the cost of human capital makes up about 70% of adviser expenses.
Mr. Kohl said that the biggest compensation problem he sees in the industry is owners being unclear about communicating the priorities of the business to their team and how pay is tied to those goals.
Some owners also focus too heavily on the dollar amount given to employees, he said.
Establishing an attractive compensation package for employees is a key factor in attracting new talent, which is a priority for many firms today, Mr. Kohl said in an interview.
Competitive rewards and compensation and the stability and appeal of the organization are items that applicants look at, he said.
"I'm not going to join a business that I think is shaky," Mr. Kohl said.
Larger firms face other challenges.
RIAs with multiple owners and principals can become "paralyzed" by compensation, not wanting to change anything, said Wendy Benedict, a senior human resources at ManpowerGroup Solutions, who took part in a panel discussion after Mr. Kohl's speech.
Finding something in the middle everyone can agree upon is usually the best solution, she said.
Although compensation is a top concern for many firms, management shouldn't let it become a distraction for employees, Douglas Wolford, the president and chief operations officer for Convergent Wealth Advisors, said during the panel discussion.
His firm, which manages $11 billion in assets, looks at client retention rates as part of the discretionary bonuses given to advisers, but not all advisers have compensation packages that are tied to generating new business, he said.
"At the end of the day, compensation is something no one should be thinking about," Mr. Wolford said.
"We want to build our client's wealth," he said. "We should also want to grow our employee's wealth."
Christopher Cordaro, a managing partner and chief investment officer at RegentAtlantic Capital LLC said during the panel discussion that his firm, which manages $2.8 billion in assets, has streamlined its compensation tactics in the past few years.
Advisers each receive a base pay. They also can receive incentive compensation based on meeting overall firm goals and generating new business.
Each adviser has a personal new business goal for the year based on the number of years that they have worked in the industry.
"We have to resist that urge to tinker with it," Mr. Cordaro said of the compensation system. "I think every adviser needs to have a business development goal."
Advisers who attended the session said that compensation is a key focus for their practices now.
In an interview, Andrew Barrett, an owner of Family Asset Management LLC, said that he attended the session to help his firm establish effective compensation policies, especially among younger advisers.
His firm has four employees and manages about $90 million in assets, with business growing at about 15% per year.
Mr. Barrett aims to hire more advisers in the coming years.
"It can be challenging when the owners are working with advisers in a close environment," he said, emphasizing the need to maintain a team focus.
In an interview, Jill Steinberg, president of Walden Capital Advisors, said that trying to hire the right people with the right skill sets is one of her main focuses at the moment.
She just passed the $100 million threshold at her firm.
The panel gave her insights about how to incentivize employees and encourage them to be vested in the company, Ms. Steinberg said.
"I'm moving from being an entrepreneur to a business," Ms. Steinberg said. "I want it to be a business with value."