RIAs need to race to zap COLAs,

Paying staff too little, or too much, is always a risk, but 8% inflation and 20% dip in asset-based revenues from markets magnifies the downside potential of a cost-of-living default alienating talent or killing profits.

The heat is on.

Many RIAs are in a race against the clock as the December pay review season nears with both the stock market and the labor market stacked against them.

Thousands of wealth managers will need to take a position on the use of a COLA, short for cost of living adjustment.

It's a risky default mechanism made even more problematic given fee-based revenues will be down 20%, or more, for many firms because of the declining stock market.

The COLA, based on inflation, is favored by some for being simple, impartial and ubiquitous. With over two decades of low inflation, it may have been passable for some as a bargaining tool.

But now, it's high time to begin phasing out the COLA – and not just to save money.

COLA does not reflect the supply and demand of talent, and over time, it will blow out fixed costs.The most effective -- indeed the most necessary, entering 2023 -- are pay structures for encouraging performance-based productivity.

Market-led pay

Paying an 8% COLA raise to vital talent hazards underpaying in this compensation environment as much as overpaying – without addressing a deeper long-term interest...

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