From the September 2009 issue of Investment Advisor • Subscribe!

September 1, 2009

The Fast Track: All The King's Men

Creating the right jobs for the right people

In recent columns, I've written about how we emphasized three unique strengths--extreme delegation, niche focus, and operational efficiency--to build three extremely successful advisory practices. Now, I'd like to talk about solving a challenge that's faced by virtually every independent firm that attempts to evolve from a one- or two-advisor shop with some support into a real business: getting the maximum impact from your staff, or as we say in the consulting biz, your human capital.

When I started working with Financial Management Group Inc. in Cincinnati, Ohio, owner Brett Wilder's 20-year old firm appeared to be one of the best advisory firms in the country--having been listed ten plus years on "Top Advisory" firm lists including nine consecutive times on Wealth Manager magazine's "Top Dogs" list. With three other lead advisors, and eight staff employees to help him, Wilder generated over $1.5 million in annual revenues providing fee-only, comprehensive financial planning and investment management services. Yet, below the surface lurked the kind of chaos that's all too common at advisory firms approaching what Pershing's Mark Tibergien has called "The $1 Million Barrier."

As Tibergien (in his former life as CEO of Moss Adam's advisory consulting unit) has described the problem, chaotic growth usually arises as firm growth approaches $1 million in annual revenues, which typically means it has about ten to twelve total staff. In my experience, if the owners don't address the problems before this point, there will be too many of the wrong people in the wrong positions, the lead advisors will have begun to feel that they don't need each other anymore, and their inflated egos won't be willing to work through the pain of reorganizing the firm. The alternatives are often stagnation or breaking up the firm.

Managing Financial Management

At Financial Management Group, each of the eight support staff was attached to an advisor, in virtual silos. Everyone was overloaded, confused, and working very inefficiently. Like many firms, when a new task came up--such as technology, compliance, marketing, or even reception--their solution was to hire another person. The good news was that they had hired very well: the firm really did hire the right people for the right jobs. The problem was that the right jobs simply didn't exist...yet.

We took three months to sort the firm out, which included interviewing the employees, and observing the work environment. Job satisfaction was low and the staff wanted changes, more professional work and a bit of organization. During that time, I experienced just what the employees were complaining about. Random tasks were thrown at me: do this, help with that, can you fix this mess? I was always putting out fires, confused, off balance, and felt continually unable to catch up, or do what I was retained to do.

With some effort, I extracted myself from the firm's way of operating, and got Brett Wilder to focus on solving the problem from the top. The firm needed to be completely reorganized, into four separate departments, each under one of the lead advisors: chief investment officer, director of financial planning, chief operating officer (who oversees business management, compliance, and administration), and the owner/CEO, who as the firm's rainmaker is chief of marketing.

Making an effective, successful, long-lasting transition to a new organizational structure requires two essential elements: staff buy-in, and staff training. Omitting either one is a recipe for disaster. To get everyone working on the same page, our process starts with creating a new organizational chart, a comprehensive new job description for each person in the firm, and a new flowchart that formalizes the process for every element of client work that needs to be done from setting up the initial account to when, where, and how long each file will be stored. Each of these transition documents is reviewed multiple times by all employees, with ample opportunity for them to add feedback and comments.

Not only does this create the feeling that they have helped design the new firm because, well, they have, but detailed input from folks who are actually going to do the work is invaluable to a successful reorganization. In the case of Financial Management Group, some employees initially resisted the change. But every employee was coached through the transition, with explicit instructions that "if you have an issue, e-mail us." Working through this often slow, and sometimes painful process, listening to and addressing everyone's concerns, is the only way I know to build the group consent you need for a genuine commitment to making the reorganization succeed. Because without that level of commitment, operational inertia will stop your reorg dead in its tracts, despite the best of intentions.

The Biggest Stumbling Block

The second essential step to a successful reorganization is training. This is where I see most advisory firms fail in their attempts to transition to true businesses. At first thought, retraining staff and/or advisors who have been with the firm for five, 10, or more years seems silly, which is why virtually no one does it. Yet, if you take a minute to think it through, nothing could be more obvious: You've reorganized your firm, giving most if not everyone new jobs, new responsibilities, and a new person to report to. Some folks might have new skills to learn, but everyone will have a new system to learn, new workflow, new responses when problems inevitably arise, and possibly new technologies. Expecting people to stop doing things the old way, and use a new system when workflow starts to heat up is simply unrealistic. This is why most firm reorgs fail.

Retraining, however, temporarily increases the workload: senior staff has to make time to train everyone else, who has to take the time to be trained, all of which is done at the sacrifice of not doing client work. Which is why many firms resist doing it in any meaningful way.

To ease the training burden, I recommend making reorganizations in stages, so that only a few employees are being trained at any one time. In Brett Wilder's firm, we implemented the transition in three steps: first, we created the investment management department, transitioning many of the CIO's clients to the other lead advisors, so he and his support advisor could set up the systems to manage the portfolios of all the firm's clients. Next came the financial planning department, which took over responsibility for all non-investment related client services. And finally, we're gradually transitioning the chief operating officer's clients to the investment and financial planning departments. The owner/CEO had been moving towards primarily rainmaker status for years, we simply continued to gradually offload his client work to the other departments as they became fully functional.

The transition didn't go without a few glitches, but because we took it gradually, and didn't overload anyone, we were able to work through them pretty smoothly. Until the financial meltdown hit last year, revenues were growing (more than doubling in two years), and the office chaos--along with it's corresponding stress levels--had significantly declined.

While the market downturn has somewhat reduced revenue from its previous highs, increased service levels on both portfolio management and financial planning has helped the firm retain all its clients. Just as importantly, Financial Management Group has also managed to hang onto ALL its employees and is now well positioned to reach new high growth levels as the economy and investment markets progress towards recovery.


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

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