InvestmentNews/Moss Adams Adviser Compensation and ... · business group of InvestmentNews. We wish to extend special thanks to the advisory firms that participated in the 2011 InvestmentNews

InvestmentNews/Moss AdamsAdviser Compensation and Staffing Study2011

Sponsored by:

© 2011 Crain Communications Inc. i

IN Adviser SolutionsIn 2009 InvestmentNews acquired the Moss Adams LLP benchmark-ing studies and formed IN Adviser Solutions, an independent busi-ness group, to continue performing objective research and provide industry benchmarking data and education for advisory firms. The team of Kelli Cruz, Director of Research and Consulting, Jeff Pierce, Senior Manager of Research and Consulting, and Jennifer Specter, Client Services Manager, has over 40 combined years of experience in the financial services industry. IN Adviser Solutions core services include:

Research and Benchmarking

Specializing in survey research on topics including financial perfor-mance and compensation and staffing, they provide data compilation and analysis and tool development to help advisory firms grow and manage their businesses more effectively.

Leveraging their research and experience in the financial services industry, they provide custom white papers, reports on industry-rele-vant topics and best practices from top-performing advisory firms.

Consulting Services

Offering business management consultation, they can assist with strategic business planning and human capital management.

Developing educational forums for advisory firms, they deliver con-tent through interactive workshops, webcasts, and break-out sessions to help firms take findings from the IN Adviser Solutions research and apply them in their businesses. For more information about IN Adviser Solutions please visit www.inadvisersolutions.com.

InvestmentNewsPublished by Crain Communications Inc., InvestmentNews (www.investmentnews.com) covers developments that affect the business of financial advisers, including news of industry trends and competition, legislation, people, products, suppliers and technology. It also covers the economy, retirement issues, taxes, estate planning and investments including mutual funds, equities, bonds, alternatives and real estate.

Moss Adams LLPMoss Adams LLP provides assurance, tax and consulting to private and public businesses, not-for-profit and governmental organiza-tions. For over 15 years, the firm has conducted benchmarking and research studies sponsored by top financial services organizations, delivering customized industry and client reports. Founded in 1913, Moss Adams is the largest accounting and consult-ing firm headquartered in the western United States and the 11th larg-est in the nation, with 21 locations in Washington, Oregon, California, Arizona, and New Mexico. Consulting services include succession planning, mergers and acquisitions, corporate finance, valuations, information technology, litigation support, and industry research. For more information, visit www.mossadams.com.

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Pershing Advisor Solutions LLCPershing Advisor Solutions LLC (member FINRA, SIPC) is an affiliate of Pershing LLC and a leading custodian to independent registered investment advisers and dually-registered advisers working in conjunction with many of Pershing LLC’s introducing broker-dealer customers. Pershing LLC (member FINRA/NYSE /SIPC),a BNY Mel-lon company, is committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Through an innovative custody platform, Persh-ing Advisor Solutions delivers superior expertise and scalable and customizable solutions to help independent registered investment advisers manage and grow their businesses. Additional information is available at www.pershingadvisorsolutions.com.

Special AcknowledgmentsThis report was created by IN Adviser Solutions, an independent business group of InvestmentNews. We wish to extend special thanks to the advisory firms that participated in the 2011 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study. Members of these firms contributed valuable time to ensure a breadth and depth of study data that is unmatched on the topic of human capital for advi-sory firms.

We also thank our sponsor, Pershing Advisor Solutions LLC, for its generous support. Finally, we thank our many other partners in the industry, both firms and industry associations, who helped promote survey participation among their clients and members.

Disclaimer and CopyrightThe data reported in this study was provided directly by participants to IN Adviser Solutions. IN Adviser Solutions was not engaged to and did not audit or review this information and, accordingly, does not express an opinion or any other form of assurance on it. The data contained in this report may not be a statistically valid representation of the entire market of financial advisory firms; rather, it is represen-tative of the firms that elected to participate in this survey.

The material in this report is copyrighted by Crain Communications Inc. No portion of this report may be reproduced or distributed with-out the express written consent of Crain Communications.

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Acknowledgments ............................................................................................ i IN Adviser Solutions .................................................................................. i InvestmentNews ........................................................................................ i Moss Adams LLP ....................................................................................... i Pershing Advisor Solutions LLC ................................................................ii Special Acknowledgments .........................................................................ii Disclaimer and Copyrights ........................................................................ii

Executive Summary ....................................................................................... vi Clients and Assets Continue to Grow, but at a Slower Pace ....................vi Revenue and Profit Recovery Support Higher Owner Income ...............vii Firm Size Does Not Determine Top Human Capital Firms .....................viii Top Human Capital Firms Outperform Financially ...................................ix Majority of Firms Overly Optimistic About Their Human Capital Performance ...............................................................................x Summary of Findings ................................................................................xi Methodology ...........................................................................................xiii

Chapter 1: Changes in Staffing Practices ........................................................1 Most Firms Maintained Staff During the Recession with No Staff Cuts or Reductions .................................................................. 1 Hiring on the Rise as Firms Look for Growth ........................................... 2 Industry Hiring Focuses on Professional Staff ........................................ 2 Competition Increases to Hire Technical Specialists ............................... 3 Minority of Firms Hire College Graduates, Use Diverse Recruiting Sources ................................................................................ 3 Interns Are an Under-Utilized Resource ................................................... 4 Conclusions ............................................................................................... 5

Chapter 2: Base Salary & Incentive Compensation ........................................6 Recovery in Professional Incentive Pay Lags Industry-Wide .................. 8 Larger Firms More Likely to Offer Incentives to Non-Professionals ....... 9 Firms Not Offering Any Incentive Compensation Lag in Other Areas ..... 9 Future Incentive Opportunities Will Rise for All Employees .................. 10 Mixed Success in Tying Incentive Compensation to Goals ....................11 Professional Incentives Driven Primarily by the Firm’s Financial Performance ..........................................................................11 Non-Professionals’ Incentives Driven Primarily by Individual Goals .... 12 Incentive Programs’ Funding Sources Vary Widely............................... 13 Conclusions ............................................................................................. 14

Chapter 3: Employee Benefit Programs........................................................15 A Large Majority of Advisory Firms Offers Benefits .............................. 16 Firms Increasing Benefits as Key Part of Compensation Mix................ 16 Generous Medical Benefits for Employees and Families ....................... 17 Many Firms Offering Benefits Offer Multiple Benefits ........................... 18 Firms Shouldering Much of the Cost of Heathcare ................................ 18 Time Off with Pay a Core Part of the Benefits Package ......................... 19 Use of Retirement Plans Very High Except For Smallest Firms ............ 19 Retirement Contributions Come at a Reasonable Cost to the Firm ....... 20 Conclusions ............................................................................................. 20

Chapter 4: Employee Development & Retention ..........................................21 Many Firms Fail to Document Job Descriptions and Goals ................... 21 Highest Levels of Employees Least Likely to Be Reviewed for Performance ................................................................................... 22 Strong Retention Practices Enable “Very Effective” Performance Measurement ................................................................. 23 You Don’t Have to Be a Large Firm to Offer Training ............................. 24 Many Firms Struggling with Developing Career Paths for Staff ............ 24 Career Path Planning an Indicator of Strong Human Capital Practices 25 Not All Retention Is Good; Not All Turnover Is Bad ................................ 26 Conclusions ............................................................................................. 27

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Chapter 5: Owner Compensation & Equity Trends .......................................28 Owner Compensation Increasing ........................................................... 28 Most Owners Receive a Base Salary ...................................................... 28 Most Owners Receiving Multiple Sources of Compensation ................ 30 Owner Salaries Most Commonly Based on Market Rates ..................... 31 Very Few Staff Transitioning to Ownership Status ................................ 32 Top Human Capital Firms Offer More Ownership Opportunities ........... 33 Non-Financial Criteria Important in Expanding Ownership ................... 33 Top Human Capital Firms Have Tighter Criteria for Expanding Ownership .......................................................................... 34 Most New Ownership Stakes Are Purchased and Self-Funded ............. 34 Conclusions ............................................................................................. 35

Chapter 6: Staffing Evolution of a Firm ........................................................36 Leverage at the Adviser Level a Top Goal at Every Growth Stage ......... 37 Consistent Growth Curve for Administrative, Support and Technical Staff .............................................................................. 38 Conclusions ............................................................................................. 39

Chapter 7: Conclusion ...................................................................................40

Glossary of Terms .........................................................................................42

Position Descriptions ...................................................................................44 Professionals .......................................................................................... 44 Dedicated Management .......................................................................... 45 Technical Specialists ............................................................................... 46 Support Staff........................................................................................... 47 Administrative Staff ................................................................................ 48

Appendix – Data Tables .................................................................................49 Compensation/Incumbent Information .................................................. 50 Income Statements ................................................................................. 92 Business Profile .................................................................................... 106

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Table of Fig

ures

Figure 1: Median Clients by Year ..................................................................... viFigure 2: Median AUM by Year ....................................................................... viiFigure 3: Median Revenue by Year ................................................................. viiFigure 4: Average Profit Margin by Year ......................................................... viiFigure 5: Average Pre-Tax Income per Owner by Year .................................. viiiFigure 6: Firm Sizes of Top Human Capital Firms vs. All Other Firms .......... viiiFigure 7: Top Human Capital Firms Outperform All Others Financially .......... ixFigure 8: Career Paths: Perception vs. Reality ................................................. xFigure 9: How Firms Retained Staff During the Recession .............................1Figure 10: 2010 Recent Hiring Trends ..............................................................2Figure 11: Staffing Changes ..............................................................................2Figure 12: Hiring on the Rise ............................................................................2Figure 13: Hiring the Next Generation ..............................................................4Figure 14: Common Intern Job Responsibilities ..............................................4Figure 15: Percent of Incumbents Receiving Base Salary, Incentive, and Commissions ............................................................................6Figure 16: Service Adviser Total Compensation Range ...................................6Figure 17: Year over Year Change in Base Salary .............................................7Figure 18: Percent of Firms Offering Incentive Compensation to Non-Professionals ...........................................................................9Figure 19: Performance-Based Incentive Compensation Drivers for Professionals ........................................................................... 11Figure 20: Performance-Based Incentive Compensation Drivers for Non-Professionals ...................................................................12Figure 21: Options for Determining Incentive Pool ........................................13Figure 22: Sample Total Compensation Statement ........................................15Figure 23: Percent of Firms Offering Benefits by Firm Size...........................16Figure 24: Types of Medical Benefits Provided to Employees .......................17Figure 25: Types of Benefits Provided to Spouse/Partner/Dependents ........17Figure 26: Average Premium Paid by Employer .............................................18Figure 27: Retirement Benefits by Firm Size ..................................................19Figure 28: Levels of Employees Evaluated .....................................................22Figure 29: Firms that Conduct Owner Performance Reviews vs. All Others ...22Figure 30: Firms with “Very Effective” Performance Reviews vs. All Others ..................................................................................23Figure 31: Self-Assessment Scores for Firms with “Very Effective” Reviews vs. All Others ...................................................................23

Figure 32: Firms with Formal Training Programs by Firm Size .....................24Figure 33: Defined Career Paths and Organizational Structure by Firm Size ..24Figure 34: Firms with Defined Career Paths and Organizational Structure vs. All Others ..................................................................................25Figure 35: Drivers of Employee Turnover .......................................................26Figure 36: Percent of Firms Paying Owners a Base Salary ...........................28Figure 37: Base Salaries for Owners ..............................................................29Figure 38: Owners Receiving Distribution Only .............................................29Figure 39: Owner Compensation Components ..............................................30Figure 40: How Owner Base Salaries Are Determined ...................................31Figure 41: Number of Firms with Multiple Owners and Average Ownership Structure .....................................................................32Figure 42: Firms Expanding Ownership .........................................................33Figure 43: Median Criteria for Expanding Ownership ....................................34Figure 44: Structure of Ownership Transactions ...........................................34Figure 45: Most Common Ownership Funding Mechanisms ........................35Figure 46: Staffing Evolution of a Firm...........................................................36Figure 47: Average Staffing Levels by Firm Size ............................................36Figure 48: Creating Leverage at the Adviser Level .........................................37Figure 49: Administrative Staff by Firm Size ..................................................38Figure 50: Support Staff by Firm Size ............................................................38Figure 51: Technical Specialists by Firm Size .................................................38

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In any analysis of the advisory industry, even for specific topics like human capital, we believe that it is helpful to begin with a review of the overall state of the industry. Such a review allows readers to

see the issues in context, and understand how the topic in question is being driven by (or is driving) larger industry trends.

This year, we see that while overall growth and profitability seem to have recovered, the rate of increase for both assets and new clients has slowed, even as advisers continue to target moderate to aggres-sive growth in the near term. Yet competition for the best human capital is rising, as firms try to build resources that will propel growth in an industry where high growth rates are becoming increasingly difficult to sustain. For this reason it is all the more important for firms to have a sophisticated human capital philosophy and a robust strat-egy for achieving their goals.

What is a human capital philosophy? At its heart, an advisory firm is a “people business,” in which the value delivered is almost entirely driven by its people. Therefore, just as advisers would look for the most appropriate assets to deliver on a client’s investment objective, firm owners need to set a strategy for human capital and look for the most appropriate people to support the firm’s value promise to clients.

Further, it is critical to understand that managing human capital is more than just compensation. It’s about how you staff the organiza-tion and why, and how you drive performance and motivate the team that you put together. For this reason, every firm needs to leverage a unique combination of rewards and incentives that works best for that firm, its people, and its clients.

Clients and Assets Continue to Grow, but at a Slower PaceWhile firms’ median clients and median assets under manage-ment (AUM) are both on the rise, their growth rate has showed two consecutive years of decline, to approximately 5% and 12%, respec-tively. Client and AUM growth have slowed significantly since 2009, which is not surprising because as firms grow they have to gain proportionally more assets and clients to maintain the same growth rate (Figures 1 & 2).1 But the absolute growth numbers are slowing and suggest that growth will be more difficult in the next few years. Firms will have to work harder to recover the growth trajectories they enjoyed before the recession even as advisers’ growth targets re-main high: the 2011 InvestmentNews RIA Technology Study reported that 89% of advisers want to grow their firms moderately (49%) or aggressively (40%).

Figure 1: Median Clients by Year

201216

230241

300

225

150

75

02008 2009 2010 2011 Anticipated

Clients

Percent Change 7.5%

6.5%

4.8%

1 Median clients, AUM and revenue (Figures 1-3) are for firms providing data for all years.

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Figure 2: Median AUM by Year

Revenue and Profit Recovery Support Higher Owner IncomeRevenues, profits, and pre-tax owner income have all experienced healthy rebounds, with many firms emerging from the recession stronger than they were going into it. Median revenue growth took a dramatic U-turn, with overall revenue topping pre-recession levels (Figure 3). Profit margins likewise recovered to levels higher than pre-recession levels in 2007 (Figure 4).2 And pre-tax owner income nearly reached its highest level in the past five years (Figure 5). Financially speaking, advisory firms seem to have bounced back; the market recovery as well as the addition of new assets and revenues has restored their earning power and profitability. The issue now seems to be whether they can continue to scale up by increasing assets and revenues while controlling or reducing expenses – the biggest share of which is “people.”

Figure 3: Median Revenue by Year

Figure 4: Average Profit Margin by Year

$1.1M$1.0M

$1.3M

$2.0M

$1.5M

$1.0M

$0.5M

$02008 2009 2010

Revenue

Percent Change

22.0%

-10.6%

20.4%

17.6%

13.0%

21.1%

25%

20%

10%

15%

5%

0%2007 2008 2009 2010

$109.8M

$134.4M

$160.0M

$180.0M$200M

$150M

$100M

$50M

$02008 2009 2010 2011 Anticipated

AUM

Percent Change

22.4%

19.1%

12.5%

2 Figures 4 and 5 are based on prior years’ study results.

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Figure 5: Average Pre-Tax Income per Owner by Year Firm Size Does Not Determine Top Human Capital FirmsFor this year’s study, we developed a new set of criteria for “top performers,” based on a range of successful strategies for managing, developing, and retaining talent (see sidebar). We then analyzed the financial performance of this group, and found that their adherence to human capital management practices did correlate to better overall financial results.

In terms of size, we found that the top human capital firms were distributed along a similar bell curve as the “all other” group (those firms that did not meet the top human capital firm criteria), as well as the overall study population (Figure 6). The exceptions tended to be at the extremes, in the smallest and largest firms. Firms appear to hit a critical size – between $250K and $500K in revenue – where imple-menting successful human capital management strategies begin to become necessary and are possible. At this evolutionary stage, a firm’s staff grows to the point that systematic management is needed in regards to assignment and documenting of responsibilities, for-mally assessing employee performance against goals, and address-ing career advancement and development issues for employees. The largest firms with the largest staffs tend to have more resources to apply in support of these practices, but firms of all sizes are benefit-ing from such efforts.

Figure 6: Firm Sizes of Top Human Capital Firms vs. All Other Firms

$412,112$449,787

$347,733

$445,382

$500,000

$400,000

$200,000

$300,000

$100,000

$02007 2008 2009 2010

2%

9% 9%

19%18%

20%21%

24%

19%

9%10%

8%

21%

12%

30%

25%

20%

15%

10%

5%

0%

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$100K-$250K $250K-$500K $500K-$1M $1M-$2M $2M-$3M $3M-$5M > $5M

Top Human Capital Firms

All Other Firms

Top human capital firms were required to meet nine of the following eleven criteria:

1. An average effectiveness score of ≥ 3.5 out of 5 on

fourteen employee retention factors

2. Top quartile for revenue/staff

3. Clearly defined individual goals and objectives

4. Clearly defined firm goals and objectives

5. Documented job descriptions for all employees

6. Employee awareness of job descriptions, roles, and

responsibilities

7. Defined career paths and organizational structure for

employees

8. Employee awareness of career opportunities and

organizational structure

9. Formal training program in place to train and educate staff

10. Employee performance evaluations

11. Very or somewhat effective performance reviews

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That is a key finding for the top human capital firms: size is not the primary determinant of successful human capital management. Many small and mid-sized firms do an outstanding job in managing their human capital. We take this result to mean that robust human capital management practices can be achieved at almost any size, as long as the firm has a clear human capital strategy and is disciplined about following it.

Top Human Capital Firms Outperform FinanciallyTop human capital firms outperform other firms financially, with nearly 80% higher revenue, almost 15% higher profitability, and nearly 50% higher pre-tax income per owner. They are also more productive as measured by revenue per total staff (nearly 6% higher) and revenue per professional (nearly 17% higher) (Figure 7). We be-lieve that while some advisers may view human capital management as time-intensive and potentially burdensome, these study results indicate that investing time into managing human capital can deliver a strong financial return.

Figure 7: Top Human Capital Firms Outperform All Others Financially

Part of what’s driving these results is that top human capital firms have more clients (about 30% more), and those clients are gener-ally wealthier: these firms have higher AUM per client and higher revenue per active client. But rather than dismiss their higher perfor-mance as being a result of having larger clients, we need to consider whether they have larger clients because they are better at what they do – and we are not referring to the investment management part of the job, but instead to the client acquisition and retention aspects of the job.

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Capital FirmsAll Other

Firms% Difference

(Top Human Capital Firms vs. All Other Firms)

Clients 273 208 + 31.2%

AUM $220.0M $142.5M + 54.4%

Revenue $2.0M $1.1M + 78.8%

Revenue per professional $507.5K $435.5K + 16.5%

Revenue per total staff $194.3K $183.6K + 5.8%

Pre-tax income per owner $350.1K $235.7K + 48.5%

Operating profit margin 14.8% 12.9% + 14.6%

Figures reported above are medians.

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Despite working from a larger base (in revenues, AUM, and cli-ents), top human capital firms are able to match the growth of their smaller counterparts – both top human capital and all other firms each grew at a compounded annual rate of about 5% for clients be-tween 2008 and 2010, and both groups show a compounded annual growth rate of about 23% for assets over the same time frame. Top human capital firms are matching the growth rate of their smaller peers by quickly building size and scale, and adding significant numbers of new clients and assets, even though overall industry growth is slowing.

Majority of Firms Overly Optimistic About Their Human Capital PerformanceWhen asked to rate their effectiveness on fourteen different factors impacting their employees, many of which were criteria for deter-mining this year’s top performers, the top human capital group gave themselves an average rating of 4.2 using a scale of 1 to 5 (where 1 = poor and 5 = excellent), while all other firms gave themselves an average rating of 3.7. According to this self-assessment, one would expect that all other firms performed nearly as well across our eleven human capital success factors. Yet, they didn’t. The actual perfor-mance for all other firms in most cases was much lower than the top human capital group.

This result suggests that many firms are overly optimistic about their actual human capital performance. For example, on the subject of having defined career paths and organization structure, all other firms rated themselves an above average 3.4 compared to a 4.1 rat-ing for top human capital firms. Yet, despite their high self-rating, all other firms performed quite poorly on this metric. Top human capital firms were three times as likely to have a “well-defined career path” and “organization structure” (Figure 8).

Figure 8: Career Paths: Perception vs. Reality

97%

31%

100%

60%

80%

40%

20%

0%Top Human Capital Firms All Other Firms

Firm Has Defined Career Paths and Organizational Structure for Employees

Self Rating for Career Paths Performance

4.1

3.4

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For a majority of firms, there appears to be a disconnect between perception and reality when it comes to managing human capital. Part of the reason could be a misunderstanding of what such human capital management entails, and many firms may honestly believe they are adhering to successful management practices when they are actually falling short. There are many potential reasons for the dis-connect, but the key finding here is that the majority of firms need to step back and do a full and realistic assessment of their human capital programs to see if their performance really matches their perception when it comes to successful human capital management practices.

Summary of Findings After several difficult years, financial measures across the advisory industry have turned positive: AUM and clients are up for the third year in a row, while profit growth, revenue growth and owner income all returned to positive territory this year. And the vast majority of ad-visory firms are still targeting moderate to very aggressive growth, even though the rate of growth across the industry is slowing.

As we identified in our 2010 Financial Performance Study of Advisory Firms, retaining staff and investing in human capital is a key path to achieving that growth. And this year’s Adviser Compensation and Staffing Study highlights a wide range of trends and current practices

that may help firms leverage human capital to outperform.

As firms seek growth, hiring is on the rise with an emphasis on expanding the ranks of firms’ advisory teams; the second most common hires are for technical specialists that support an expanded value proposition.

• Many of these hires are new positions for the firm rather than replacements for departing employees.

• Competition for professionals and technical specialists is driving up the compensation for these roles.

• Firms hiring professionals anticipate higher growth and profit-ability than other firms.

The majority of employees receive salary and incentives – with sala-ries rising fastest in the most competitive job categories, and incen-tives for all levels of employees expected to rise in 2011 and beyond.

• These incentive increases are not a substitute for salary increases; they are additive.

• Incentives are driven by tangible performance metrics appropriate to the job function.

• Firms that offer incentives perform better overall in managing human capital.

Benefits are also expected to rise in coming years, even though many firms already provide generous benefits packages.

• Many firms offer multiple kinds of benefits, including paid time away from work and various types of healthcare benefits.

• Most firms are making generous premium contributions to health insurance.

• Retirement plans are common, but options vary with firm size.

• Average retirement contribution cost is not financially burden-some to most firms.

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A small contingent of firms excel at development and retention prac-tices; the remainder of firms fall short in a range of areas.

• Tying performance evaluations to goals/objectives is a weak link for many firms.

• All sizes of firms are finding successful approaches to training.

• Career path development is a challenge for the industry.

• Top human capital firms have higher turnover, and are less likely to keep poor performers.

Owner compensation is up, but ownership is not expanding fast enough to address looming succession and transition issues.

• Most owners receive multiple types of compensation.

• Owners are increasingly receiving a base salary, and those salaries are rising.

• Ownership opportunities expanded slowly over the past two years.

• Top firms are expanding ownership faster and offering more opportunity to staff.

• Most ownership is purchased, although funding mechanisms vary with self-funding and internal loans topping the list.

This year’s data indicate that hiring and developing staff is both increasingly competitive, and critical to having a competitive advan-tage. Hiring is up. Salaries are rising. And benefits are expanding. Growing firms are targeting specific kinds of employees that can most help them add capacity; firms are focused on gaining leverage for their adviser teams, to maximize professional productivity and profitability. And finally, firms that excel in managing human capital excel across a wide range of metrics: they are both active and ag-gressive on many fronts all at once. These firms are raising the bar for the whole industry.

The study that follows explores all of these issues in detail. The results illustrate the importance of having a strategic approach to managing human capital: a firm’s people are what drive its value proposition and create a competitive advantage in the marketplace. Firms that take a systematic, strategic approach to managing human capital perform better across a range of financial measures and will be bet-ter positioned to acquire and keep top talent. But the study also aims to highlight successful human capital management practices, and use data to link those practices to a “top human capital firm” profile – one that can offer guidance to any firm seeking to implement a human capital program best suited to its vision and goals.

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MethodologyThe 2011 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study draws on data submitted by over 700 financial advi-sory firms that responded to our survey. Of these firms, 616 met our criteria for a complete and valid survey submission, including the minimum requirements of at least one year in business and $100,000 in annual gross revenue. Survey questions largely focused on compensation and staffing characteristics as well as basic financial performance during the 2010 fiscal year.

Fielding of the survey took place from April 15 to June 15, 2011, and advisers completed the survey online. Completed surveys were then reviewed and checked for accuracy. Respondents submitting questionable data were contacted individually and confidentially in order to improve data quality. All survey data was then entered into a database for statistical aggregation.

All firm-level information provided for this study is strictly confidential. No persons other than members of IN Adviser Solutions had or will have access to individual company data. Firm-specific data is not dis-closed to other business units within InvestmentNews, to business units within Moss Adams, to the sponsor of the study, or to any other party.

Medians and averages are used to represent and summarize much of the survey data. Generally, medians are used to represent the typi-cal firm or job position, and averages are used when demonstrating trends experienced across groups. Medians are less prone to bias by unusual data or a smaller but widely ranging group of numbers. Averages better capture the magnitude of the data and thus provide a superior measure of the experience of the group on the whole as opposed to the experience of the typical group member.

Average and median operating ratios are calculated using a two-step process: 1) We calculate the ratio for each individual respondent; 2) then we calculate the average or median of those individual ratios. For example, for industry wide average revenue per client, we calcu

late each firm’s average revenue per client and then take the average of all those individual results. This process produces a different result than calculating the numerator and denominator separately – e.g., calculating average revenues for all firms, and dividing by the aver-age clients for all firms.

Top Human Capital Firms Versus All OthersThe 616 respondents who met the criteria for a complete and valid survey submission were divided into two groups: top human capi-tal firms and all other firms. The top human capital firms are ap-proximately the top 20% of all firms (117 in total) based on a range of current top human capital practices for managing, developing, and retaining talent. Top human capital firms were required to meet nine of the eleven criteria. Each firm was compared and ranked against the other firms on each of the criteria.

Top human capital firms were required to meet nine of the following eleven criteria:

1. An average effectiveness score of ≥ 3.5 out of 5 on

fourteen employee retention factors

2. Top quartile for revenue/staff

3. Clearly defined individual goals and objectives

4. Clearly defined firm goals and objectives

5. Documented job descriptions for all employees

6. Employee awareness of job descriptions, roles, and

responsibilities

7. Defined career paths and organizational structure for

employees

8. Employee awareness of career opportunities and

organizational structure

9. Formal training program in place to train and educate staff

10. Employee performance evaluations

11. Very or somewhat effective performance reviews

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