Smaller RIAs weathered the pandemic better than larger firms, DeVoe reports

The key to success is maintaining employee connections and getting people back to the office.

The worst of the Covid pandemic might be behind us, but the impact across the registered investment advisory space is deep and lasting, according to the latest research from DeVoe & Co.

A report released Thursday, Culture and Engagement in a Post-Covid World, shows how the effects of remote work and pandemic-related protocols have magnified management challenges related to succession planning, client retention and hiring.

“The big quit is real and it’s happening in the RIA space as well,” said David DeVoe, founder and chief executive of DeVoe & Co.

“People are the number one asset for RIAs, and this is a great reminder how important it is to invest in this asset,” DeVoe said. “Covid negatively affected culture, it has affected retention and job satisfaction. And this is a great time for leaders of RIAs to lean in and really invest in their organization.”

The research, based on results from a survey of executives from more than 100 advisory firms managing at least $100 million in client assets, shows a quarter of firms report a negative hit to company culture since Covid.

Meanwhile, 26% of respondents say company culture improved somewhat and 6% say it improved significantly.

DeVoe breaks that data down to illustrate that cultures at smaller firms weathered the challenges related to Covid much better than did larger firms.

“Firms with under $1 billion saw less of an impact on their ability to retain employees,” he said.

The reason, he believes, is that smaller firms were more likely to get back into the office or perhaps were small enough that they never went remote, enabling company culture and employee engagement to continue uninterrupted.

“There is a benefit to being smaller,” DeVoe said. “That face-to-face watercooler talk helps to keep the culture and enhance retention.”

A focus on employee attrition rates over the last 12 months, compared to historical rates, highlighted one of the bigger challenges of the pandemic for RIAs.

Firms with more than $1 billion under management saw an average attrition rate of 45% over the past year, compared to 29% for smaller firms.

Across all firms, 37% reported a somewhat to much higher attrition rate last year, while 9% of respondents reported lower attrition rates compared to historical averages.

DeVoe said rising attrition rates are the logical byproduct of remote work, which often led to employees working longer hours, thus becoming more productive but less satisfied with their jobs.

“When Covid hit, the majority of firms went remote, so the new challenge was to maintain culture and connections with colleagues,” he said. “Productivity increased, but employee satisfaction decreased. It makes sense; you’re remote, you start working around the clock, then you get more fatigued and you’re missing a key part of the job, which is seeing your friends.”

Another challenge with rising attrition rates is that it highlights the dearth of succession plans across the RIA space.

While 47% of those firms surveyed said they have or are currently implementing a formal succession plan, 24% said they plan to draft a plan, 18% claim to have an informal plan, and 11% have no plan and are not planning to create a succession plan.

DeVoe acknowledged the lack of focus on succession plans across the RIA space is not new, but said the rising attrition rate, especially among younger advisers, is exacerbating the problem.

Asked whether they currently have next-generation leadership at the company, 11% of RIA executives said they do not, which compares to 8% in 2021 and 2% in 2019.

Asked to rank their readiness to transition leadership today, 68% of executives said their firm isn’t ready, which compares to 61% in 2021, and 57% in 2019.