From the November 2008 issue of Wealth Manager Web • Subscribe!


There are much more formal definitions for the term "organizational culture," but my favorite is "what happens when no one is watching." In my experience, the difference between a successful wealth management firm and a mediocre one is not some dramatic shift in strategy or a vastly superior investment solution or even a much more talented staff. Rather, it is an accumulation of small decisions that each and every member of the firm makes in the course of their day.

? Does he return a client's call right away or first finish his morning coffee?

? Does she spend some extra time to research a problem or dismiss it as unimportant?

? Do they check all work one extra time or accept that "mistakes can happen?"

There are many such choices that that ultimately separate firms that enjoy success from those that struggle to grow.

The "when no one is watching" part of the definition is critical because as firms grow, the ability of the owners/partners to "watch" declines. With every new employee, the ability to direct and supervise diminishes. When owners are not watching, culture takes over, and the result can be either a firm that can consistently replicate the client experience as if the owner himself were there, or a firm that will struggle, often for no apparent reason that can be pinpointed. Visualize what happens on the highway when a police car is driving in one of the lanes; suddenly, everyone slows down. As a firm grows it can't have enough "police cars" (i.e., owners) constantly monitoring behavior. Developing a culture that supports the firm's strategy and the shared goals of employees and owners is critical for growth and success. Growth, however, often leads to cultural decay rather than evolution.

In my communist past, when "the people" owned everything, everyone was supposed to be an owner of all businesses. Unfortunately, rather than increasing everyone's responsibility for the outcome, the system created the biggest epidemic of "not my problem!" In that environment of diluted responsibility and ability to change outcomes, the only result was best described by the joke: "We pretend to be working; they pretend to be paying us!" Unfortunately, as wealth management firms grow, I often observe the exact same signs of pending bureaucracy and corporate politics that spell trouble for future success.

Many of the largest successful firms that I have dealt with as a consultant have told me that they are afraid that growth will result in losing their culture. Here are seven signs that this may already be happening in your organization:

1. The Conference Room Test

Simply check the schedule of your largest conference room. If in any given week it lists more internal meetings than client meetings, you are in trouble. At some point in their growth and evolution, firms go from being intensely client-focused to being entirely consumed by internal issues. When that happens, the people involved are usually unaware. It may even seem normal or beneficial. In fact, someone is probably arguing that there is no other way of operating a "real business."

Intense client focus is what initially separated independent wealth management firms from Wall Street giants. When that focus is lost, there is no qualitative difference between the two models--only quantitative differential in size and pricing.

2. Strategic Use of the BCC Line in Emails

It exists in every inbox: The email written for the sole purpose of using it later as "I told you so!" evidence, and strategically blind copied to a superior. When you start receiving a lot of these BCCs, it is a clear sign that you are in charge of the kingdom of no responsibility, where covering yourself is much more important than getting something done.

Somehow, small firms value ideas and encourage them while large firms fear mistakes. That fear stifles any creativity. Even worse, the problem often goes beyond innovation and turns into an issue of responsibility. In a firm that suffers from this syndrome, projects always seem to be late and somehow everything tends to take a lot more time than seems necessary. However, there is usually a very well documented paper-trail of all the reasons why this is happening, exonerating all participants of any blame.

3. Creating Your Corporate Scriptures

Having a business plan document is a wonderful sign of systematic growth and a well-thought-out use of resources. However, when employees (or partners) start quoting the business plan too regularly, this is a sign of dogmatism and often, lack of understanding of the strategy that the business plan is meant to implement. The same is true for quoting the managing partner's last presentation!

The ability of all units of a larger wealth management organization to make decisions independently is important to the firm's ability to grow. By their nature, wealth management services create such a complexity of possible situations that it is not realistic to resolve all of them in a corporate manual or document of some kind. Therefore, each team or unit has to be able to understand how it fits into the overall strategy and provide its own interpretation of the plan. Blindly quoting the plan signifies an inability to make a decision.

4. Tenure and Loyalty Above All

When everyone introduces themselves in a meeting with how many years they have been with the firm (as in, "Hi, my name is Philip, and I have been with the firm for 10 years..."), this is a clear sign that the firm puts a lot of weight on loyalty. Of course loyalty is important for any organization, but when it becomes an overwhelming factor--the symbol of a person's standing in an organization--it is usually a sign of an aging firm and possibly, a stagnant one. New people bring new ideas, new knowledge and new perspective. Even worse is a tenure-driven compensation model which essentially promotes sticking around and discourages the newer and potentially more innovative team members.

5. The Screensaver and Other Propaganda

Some measure of common identity is necessary for every organization, but the required, excessive use of such paraphernalia as logos, mottos, etc. is a clear sign of misunderstood loyalty. Employee loyalty should be earned, not required. Unfortunately, in many firms, departments compete to see who can decorate more screensavers with the company logo or put a quote from the business plan in the header or footer of internal memos.

Propaganda--the uncritical and unnecessary use of corporate messages--tends to have the same effect as excessive advertising: It creates resentment rather than attraction. And if it becomes required, propaganda can pretty much destroy any sincerity in internal communications.

6. The Detailed Dress Code

An overly detailed dress code makes the statement that "we really don't trust you to make the simplest decisions, including what you put on in the morning." Judgment--the ability to interpret and apply general guidelines--is integral to professional services. Replacing it with a code in any area essentially promotes reluctance for employees to emphasize judgment.

7. The War Between Departments

The last, but perhaps deadliest sign of a culture in trouble is the tacit acknowledgement of differences that are tolerated--often even engineered into the way the firm functions. Examples such as separating departments because of personality conflicts are abundant in firms of any size and are extremely damaging to growth and development.

The reason why this is such a big problem is that organizational culture tends to propagate itself. Entire "generations" of employees grow up mistrusting the "other" department often well beyond the original differences, and that mistrust and lack of cooperation become part of the firm's DNA. Once that happens, the dysfunction becomes permanent and often results in operating performance issues or missed opportunities,

sabotaging the firm's own goals:

Philip Palaveev is President of Fusion Advisor Network. He can be reached at

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