From the December 2006 issue of Investment Advisor • Subscribe!

December 1, 2006

Reality Check

Long before making a practice hand-off, make sure your firm's culture and structure reflects your goals

Does your firm's structure tend to isolate skilled, entrepreneurial talent near the top, so that only a few key individuals are capable of managing the needs of your high-net-worth clients? If the answer is yes, you face the risk of limiting your firm's capacity to grow beyond a certain point. There's another way in which your firm's structure will affect your eventual transition from the business: If there is a great divide separating that structure and your long-term goal to retire from a self-sufficient advisory firm on your own timetable, leaving a legacy for your family, and ensuring a smooth transition for your valued clients, it might be appropriate to reexamine your firm's culture.

After all, that culture did not evolve without your participation. Working with more than 100 RIA firms at BAM Advisor Services, we're convinced that the opposite applies. Unfortunately, that might lead you to be reluctant to encourage the transition of your more junior partners from assistant to peer.

To accurately assess whether your firm's structure matches your goal, first imagine a thriving advisory firm with $500 million in assets under management, numerous long-time multigenerational clients, and more than 15 investment advisors supported by a qualified, dedicated administrative staff. This firm's structure resembles a rectangle.

Compare this model to your firm's configuration. Does your staff have the skills and motivation necessary to become a world-class team in the very near future--or are you confident that they are already there? To begin, ask yourself these questions:

- Have you and your team committed to a well-developed plan to effect change?

- Do longstanding procedures and traditions still apply to or benefit your firm? If not, have you considered how to shift away from them?

- Should your hiring processes--both search and interview methods--be redesigned to attract suitable candidates?

- As individuals begin to assume new roles, can the firm maintain continuity throughout, based on a carefully designed strategic business plan?

If the answers to the previous questions and the firm-wide changes they may lead to seem overwhelming, you are not alone. In his July 2006 Investment Advisor column, Mark Tibergien wrote that "There is nothing particularly surprising about the angst that both owners and employees have in their relationships with each other. Tension in business is always heightened when communication is poor, career path is unclear, and expectations are unspoken."

Do You Need an HR Department?

In many ways, empowering individuals firm-wide is essentially a human resources (HR) issue. We've seen both CPA and RIA firms without a human resources department, or smaller practices that lack an individual to manage personnel issues, wonder how to address the issue. Our experience at BAM leads me to make the following suggestions:

- Introduce annual/semi-annual evaluations. Reviews would allow associates and team leaders and managers to discuss how each perceives the associate's progress. Evaluations provide a forum for associates to share their thoughts, for team leaders to recognize an associate's valuable contributions, and for discussions to take place regarding potential improvements.

- Institute a formal training program. This way, you implement a system of checks and balances that allow both mentor and associate to track their progress.

- Promote from within. Based on our own RIA firm's experience, we suggest considering internal candidates for senior positions before hiring from outside the firm. An associate may decide there is little opportunity to build a career at your firm if there are hardly any promotions from within. This could lower retention and drive valued employees from your firm.

- Adjust traditional interviewing and hiring processes. Consider restructuring the way you conduct an interview. Start conversations that reveal candidates' personalities and can help you determine whether they would be a good match for your firm--like asking them to describe their optimal office environment and typical work habits.

Even firms without a separate HR department can make strides in this area. Avenues to consider include outsourcing HR needs or seeking assistance from a consultant for developing training programs and career advancement opportunities. If you prefer to keep things in-house, consider expanding the role of a current associate already recognized as an exceptional communicator to lead new projects, such as conducting regular evaluations or playing a lead role in the hiring process.

Stay Realistic While Facing Obstacles

Make a commitment to improve your firm and you're likely to encounter a few bumps in the road, but don't let those minor setbacks stop your efforts to implement real structural change.

Take another look at your firm to see why its growth might be stalled. In his March 2006 IA column, Tibergien commented, "To maintain an incompetence gap in a practice is not responsible behavior and does little to help you build a valuable practice." Console yourself, too, with the knowledge that other individuals have successfully faced the same issues and their firms have thrived. Moreover, throughout the industry team leaders are finding that the superior talent they seek may actually be homegrown.

Tibergien argues that an advantage of building an "internal team of competent individuals is that it also gives you the option of an internal transfer. If you hire and develop the right people, you can prepare for a transition that allows you to have a degree of control as to how the business will operate after you've gone."

If your firm embarks upon such a journey, expect to be in a transitional mode for several years. It is essential that you and your firm's leadership understand the time required, support the long-range vision, and remain committed to acting as mentors throughout the process.

The most successful firms tend to be those that excel in recognizing the contributions of valued employees. It's also likely that those firms have carefully selected a group of talented individuals that provide exceptional service to their clients.

Be realistic, however--it is not always possible to address work-related issues by radically restructuring the firm. Instead, firm leaders might find it is more appropriate to take gradual steps toward positive change, such as incorporating a few of the ideas discussed here. Consider that the opportunity to strengthen a firm by taking an introspective look at the way it is structured--and revisiting some of its personnel policies--might just mean the difference between having a good firm and a great firm now and when it's time for you to retire from the business.

Stuart Zimmerman, CPA/PFS is a principal, founder, and chief operating officer of emerging businesses for Buckingham Asset Management Inc., an RIA firm in St. Louis. He is also principal and founder of BAM Advisor Services LLC, a comprehensive service provider for over 100 independent RIA firms across the country. He can be reached through www.bamservices.com. (C) 2006, Buckingham Asset Management Inc.

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