Performance pay linked to stronger RIA growth, Schwab finds

RIAs with a performance-based payment plan for staff generate more long-term revenue than firms without performance-based incentives, according to Schwab’s new RIA Compensation Report.

Firms deploying performance-based payment incentives have 24% higher revenue and 43% more clients in a five year CAGR measurement span compared to RIAs without a performance-based compensation structure. Schwab surveyed over 1,000 RIAs in its study conducted from January to March 2025 to reflect results from the 2024 calendar year. 

Nearly 80% of firms compensated staff with performance-based pay in 2024. Schwab found these firms to have more defined foundational strategies than RIAs without performance-based pay incentives, as the firms with performance-based pay are more likely to have established a strategic plan, client value proposition, marketing plan, and an ideal client profile.

“Employee skill development remains a high strategic priority and three out of four advisors offer well-defined career-path opportunities,” said Lisa Salvi, managing director of business consulting and education at Schwab. “This focus on professional growth paired with a compelling compensation strategy, enables firms to  attract and retain the brightest talent and support long-term growth.”

Performance-based pay was a more common strategy for firms than linking revenue to staff pay. Only 28% of firms tied revenue from clients to staff compensation. The study also found that bigger RIAs were more likely to offer equity to advisors who had an existing book of business.

More than half (53%) of firms over $5 billion in assets under management offered equity to advisors who joined with an existing book of business, followed by 41% of RIAs over $1 billion doing the same and 34% of firms over $250 million. Advisor industry recruiter Louis Diamond of Diamond Consultants says employee equity is often a difference-maker in RIA performance.

“I always think firms that have a culture of broad equity ownership tend to be more successful. It's a really smart retention play to keep those folks. You also get more people to think like owners,” Diamond told InvestmentNews.

Notable recent employee equity plays in the RIA space included Ritholtz Wealth Management expanding equity ownership to 29 employees as part of a succession plan from founder Barry Ritzholtz. The RIA manages $7.6 billion with 85 total employees. Diamond explained the various equity structure offerings he often sees RIAs offer to advisors. 

“Some firms offer actual equity, other firms it's structured more as profits interest, so they get distributions and can monetize in an acquisition, but it's non-voting and there's different tax treatment,” said Diamond. “I think really what advisors care about, the voting doesn't matter because they're going to have such a small stake. It's more, can I get distributions, and how am I monetized in a transaction?” 

Management incentive plans (MIPs) is another equity structure observed by Diamond. 

“Basically there's value accretion based upon the growth of the business. So if an executive or an advisor joins and the firm's worth $25 million, their equity growth or reward would be based upon the growth above $25 million,” Diamond said of MIPs.