From the July 2008 issue of Investment Advisor • Subscribe!

Awaken Your Inner Manager

How to successfully manage and develop your staff

Management consultants are fond of the adage "Companies hire people; managers lose them." As trite as such sayings are to those who are doing their best to build and run a company, objective observers of how advisors recruit, reward, and retain their staff tend to come to the same conclusion: If advisors dedicated as much effort to management skills as they do to technical proficiency in rendering advice, their practices would be unstoppable forces.

Implicit in that statement is the belief that advisors would want to create such juggernauts. The reality is often much different. Indifference and distaste are good excuses for not spending time improving. As much as we would like to take a pill to get fitter, or win the lottery to get richer, success in any endeavor does not come without commitment. But that, too, is a statement worthy of the triteness hall of fame.

So what does one do? Interestingly, the Twelve Steps of Alcoholics Anonymous contain some good tips on improving one's practice management (frankly, all of the steps are relevant but I try to remain secular in this column). So please forgive the paraphrasing and the shameless adaptation of a profound and important program:

  1. We admitted we were powerless--that our business had become unmanageable.
  2. We made a searching and fearless inventory of our current practices.
  3. We admitted the exact nature of our wrongs.
  4. Having had an awakening as the result of these steps, we tried to practice these principles in managing our business.

The Unmanageable Enterprise

While there are exceptions, the vast majority of the hundreds of advisors with whom I have consulted over the years were at wits end when their practices became a certain size. It seems that financial advisory practices hit a wall at various points--at a staff of three, again at eight, again at 15, and so on. While there is no serious science behind this observation, much of it can be attributed to span of control, the points at which supervisors can reasonably manage their responsibilities and the people who report to them.

Solo practitioners who hire administrative or junior associates to help them serve clients while they grow the business experience strain between the attention they must give clients and the training and guidance needed by the staff. Silo and ensemble practices containing multiple advisors plus administrative staff struggle with goal setting, quality control, and the consistent delivery of a desired client service experience. Mature ensembles with 15 or more people tend to grow even more rapidly, often causing employees to feel lost in an organization that lacks the structure for managed growth, and creating a need for emergency handholding to retain important associates.

You know that your practice is hitting the wall of unmanageability when you experience an increase in staff turnover and client complaints, when overhead costs rise faster than revenue, and when you are unable to perform your necessary work at a reasonable pace (you are the only judge of that). While some firms may never have experienced the business version of nirvana--that ideal condition of rest, harmony, stability, and joy--it is a worthy pursuit.

Imagine working with the optimal number of clients while successfully developing others to perform tasks in which you are not interested or at which you do not excel. Imagine doing this while attracting more of the right clients who value your advice and are willing to pay you a fair price for what you deliver. Imagine a personally fulfilling and financially stable business.

The first step in achieving this sense of management control is to envision that idea of success in your mind so that you know what you are looking for, and will recognize when you have achieved it.

The second step to awakening the manager in you is to perform a gap analysis, comparing where you are in your business to where you would like to be.

Your business inventory checklist should include the following:

  • Is your strategy still relevant?
  • Do you provide a service that is personally fulfilling and financially rewarding?
  • What is missing in your offering?
  • Do you have the skills, both personally and on your staff, to deliver on your goals?
  • Do you have the structure, processes, and protocols to perform consistently?
  • Have you implemented a training program to help everyone raise their games?
  • Are your associates working at a level that allows your business to respond to current pressures and to grow?
  • Does your compensation structure reinforce the right behavior?
  • Do you have to make changes in your business model in order to attract and retain the right talent?

Righting the Wrongs

To close the gaps in your people management, keep three key areas in mind:

  1. The nature of the work
  2. The nature of the worker
  3. The nature of the workplace

The nature of the work. One of the most pleasing developments in recent years is the trend by practitioners to provide job descriptions for staff. It would be even better if these descriptions extended to the owner's role as well, but that may just be a management wonk's fantasy. While the functional summaries help, two other important clarifications should be included in a job description: (1) what excellence looks like for that position; and (2) what characteristics an individual needs to perform the work.

The nature of the worker. Over the years I have observed that people rarely leave firms for money, particularly if the job is satisfying and the compensation is within a reasonable range of the market. Our studies at Moss Adams showed that people become disaffected and leave because they lack confidence in management, the work is not fulfilling, or they have not received adequate recognition--while owners of firms consistently told us that people are terminated for poor performance. In reality, the single biggest cause of staff turnover is poor selection in the first place. Some people are better at sales than analysis, or better at art than accounting. It is difficult to remain focused on a job for which we lack the aptitude, motivation, or interest to perform. For this reason, employers must understand the employee's characteristics necessary for each position, and use interviews, background checks, and legal psychometric tests to evaluate candidates as they move into these new roles.

The nature of the workplace. I have often said that I do not believe leaders can motivate people, though I do believe they can "de-motivate" them. De-motivation may be caused by inadequate or poorly constructed compensation plans, a lack of opportunity, the failure to recognize good work, or the failure to use mistakes as teaching moments. Successful business leaders create an environment in which motivated people flourish. So, with responsibilities clearly defined and individuals well matched to each position, the next big challenge is to treat associates with the same care as that afforded to clients.

Practice What You Preach

The most successful firms have a disciplined approach to giving advice and managing client relationships. They anticipate changes in their clients' needs and respond well to surprises, effectively preserving these important relationships. Often, they have benchmarks for investment performance, a framework for deploying assets, a systematic process for engaging clients in discussion, and a protocol for discovering important developments in their clients' lives.

Applying this same discipline to human capital management allows advisors to regain control of their business and foster its growth. Management should include frequent and consistent evaluations (at least once a year, but ideally twice annually); a process for evaluating and changing compensation annually or upon a change in responsibility; and an opportunity for associates to provide upstream evaluations of their managers, using the same criteria applied to them (competence, candor, leadership, personal development, respect, integrity).

Practices with a career ladder, including a framework for how individuals can progress up the rungs (plus mentoring to help them take each step), tend to outperform the average advisory firm.

At some point, as firms get larger, owners may have to delegate responsibility for managing the human resource functions--while keeping a hand in how they are implemented and in ensuring success. Awaken the manager in you--your returns may be measured as much in personal fulfillment as in dollars.

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