From the May 2008 issue of Investment Advisor • Subscribe!

Stepping Up

Difficult markets require advisors to address the concerns of their staffs

A young financial planner at one of my client firms sent an e-mail to his employer, saying that he was concerned about the growing volume of client work, and the effect of current market volatility on client portfolios. He felt he was getting burned out, and the only solution he could think of to suggest was that he needed higher compensation.

Naturally, my client passed the e-mail on to me, along with a request for a helpful solution. (One of the perks of being a consultant is that you get to handle the messes that nobody else wants to deal with.) My response was that obviously more money wasn't going to solve the employee's problem, because the problem was the owner/advisor herself.

Many advisors believe that down markets don't affect their practices. In my experience, that's just horse hockey. Last month, I wrote about how down markets usually drive a flood of new clients to independent practices, along with a flood of new client work. But that's only the tip of the globally warming iceberg. Down markets adversely affect even the best advisory practices (especially their staffs) in many ways. And advisors who fail to recognize and address them, usually suffer a down market's most common result--staff turnover.

When the markets go down, everyone gets a little unsettled. Firms tend to get a flood of requests and inquiries from their existing clients, which are mostly nervous cries for a little handholding. Many advisors recognize this for what it is, and increase their client communications. It's a good solution, but it also in turn increases the staff's workload. At the same time, portfolio performance usually goes down, along with firm revenues, at least for a while. And that can be unsettling to employees, especially those who haven't lived through a down market before. I find it ironic that most advisors are very good at holding their clients' hands during troubling times, but fail to recognize the same need for handholding in their employees.

In fact, if anything, many advisors tend to make the situation worse. It's human nature to react to difficulties that are out of our control (a bear stock market for instance), by focusing on things that are in our control. With financial advisors, that often translates into micro-managing their employees, placing them under increased scrutiny, holding them to higher (and sometimes unreasonable) standards, and concern about petty issues that six months ago, they couldn't have cared less about. One of my clients was considering firing an employee over their messy desk--the same messy desk that the employee has had for the past five years.

Remember, Nothing Lasts Forever

It's important for senior advisors to remember three things about down markets: If you've never gone through one, it can be very unnerving, to say the least; the workload for employees will definitely increase; and the combination of those two factors can derail even the best of firms. Here's how I advise my clients to help their employees and junior professionals through tough times, and position their firms to take advantage of the new clients that will undoubtedly be headed your way:

Get hold of yourself. They tell ER physicians that in emergency situations, they should take their own pulse first. Once you're calm, then you're in a position to calm those around you, and get them to perform at their best, even in tough situations. Most likely, you've been through this before, you know what to expect, and that down financial markets are always accompanied by hysteria (fueled by an often irresponsible media) that makes things seem much worse than they really are. Even though we all know that markets move in cycles, collectively we seem driven to believe that bull markets will last forever, and bear markets will be the ruin of us all (that, of course, is why people need independent advisors).

Now's Not the Time to Do Something Stupid

So remind yourself that while portfolio performance may be off for awhile, and firm revenues may even go down, it's not the result of anything you or your staff has done wrong. It's just the nature of markets, and you're here to keep your clients from doing anything dumb exactly at times like these.

Recognize your inclination to focus on the small stuff. It's natural to try to control the things you can, but that doesn't mean you have to give in to that impulse. As a leader, down markets are your time to shine--not make things worse for your employees. So before you do anything, be sure you're not becoming part of the problem. Don't do anything that you normally don't do--scrutinize people's work, over manage, nag them, or criticize them unduly--except to increase your help and support.

Be clear about how this market is affecting your firm. Good business leaders recognize the challenges that their firms face. Instead of blindly boasting (even to yourself) how your firm is unaffected by the market, take a hard look at the reality of the situation. Does increased client handholding increase workload? For whom? What about falling portfolio performance: Have you increased your investment research and portfolio turnover? Is the firm attracting a higher flow of new clients? How is that being handled, and by whom? And who is feeling the effects of lower firm revenues, both directly and indirectly? And finally, what's the psychological impact of all this on your staff? Whose mood, moral, and/or performance has noticeably changed?

A good manager has a feel for the pulse of her business, especially during challenging times. It's the first step to effectively managing those challenges.

Have a plan. One you've taken a hard look at what your firm is facing, you need to decide what to do about it. Sometimes the best response is no response at all, but that conclusion has to come from a clear understanding of the situation, not from ignorance of it. More often, down markets require that advisory firms make some adjustments.

You've probably already cut back on your variable expenses, or at least on additional ones like upgrading your hardware and software, moving offices, a new phone system, or hiring a young professional. But you need to consider the increased workload, too. Can you shift staff off some current projects--say scanning client documents into your new paperless system--in favor of helping with increased client communications, or setting up new client files? Perhaps you need to add some temporary or part time help to leverage your existing staff. Or earmark some funds for increased overtime, for employees who want the work. Sometimes, increased costs, even while revenues are falling, are a good investment: especially when they enable you to better help your existing and new clients when they need it most.

Communicate with your employees the same as you do your clients. Most of the time, fear is the result of not knowing what to expect. Usually, no matter how bad an experience is, if you've gone through it once, the next time isn't nearly as bad (that's what mothers tell me about childbirth, for instance). Your job is to tell your staff what to expect from this down market, and what you expect from them. Of course, you can't call the bottom of the market, but you can tell them what it will be like on the way down: How clients will react, what the effects will be on the firm, what they'll likely see on TV and the Internet, how a down market is typically a good thing for independent practices, what your plan is to handle these effects, and of course, that markets tend to go back up again, sooner or later.

This kind of communication will have a number of positive effects on your staff: first, by telling them what to expect, you'll greatly reduce their trepidation; then, by sharing your experience, you'll reinforce your position as leader ("So this is why he makes the big bucks..."); and by offering them a plan of action, you'll help them focus on doing their jobs rather than worrying about the future; and finally, with less stress and more focus, your employees will be far better able to help the firm's clients through this difficult time, which is what you're really all about.

Here's an e-mail I wrote for one of my clients to send to their staff. Doing something similar can't hurt, and it just might help your staff serve your clients better: "I just want to send out an e-mail to thank all of you for all your work in the past quarter. I know that it has been a little overwhelming with client requests, growth, and the volatile market. I want you to know that if any of you have concerns or thoughts on how to relieve some of the stress, I would be glad to listen. Please know that you are the heart of our client service and being at your best helps our clients feel comfortable in interesting times. If any of you are feeling burned out or overwhelmed, please come see me and we can talk about your needs. Keep up the good work!"

It's amazing what a big difference a word of acknowledgement can make. When your staff knows that you, the firm's owner, understand and appreciate what they're going through and that the stress is only temporary, they're more likely to make the extra effort, and just as important, hang around to reap the benefits when conditions stabilize.


Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.

Reprints Discuss this story
This is where the comments go.