Room at the Top

Having been around the advisory business for almost 30 years, I’ve come to appreciate two qualities that distinguish financial planners from other capitalists: introspection and intellectual curiosity.

While fear of change consumes many folks, it’s a fear of not evolving that seems to propel enlightened financial advisors forward. That’s because by their nature financial planners help clients to confront their anxieties, and so are comfortable posing the same questions to themselves.

Yet one area where financial advisors are struggling to confront the fear of change is in the admission of new partners to their practices, either through merger or through internal growth and development of staff. In fact, we are beginning to observe a widening gap between the owners of advisory firms and the staffs they employ in terms of authority, accountability, responsibility, and contribution to firm growth.

Have you ever heard yourself making a statement like the following about your staff? “They could never be an owner–they don’t think like entrepreneurs.” Or, “They couldn’t develop new business if their life depended on it.” Or, “They’re too raw–our clients wouldn’t trust them or respond to them.” If you have, ask yourself why you hired them in the first place and why you continue to employ them.

Recently, an advisor asked us to help him develop a practice succession plan. During the engagement, he could not avoid criticizing the quality of his employees. I couldn’t help but ask: “If something happened to you, would you encourage your (not financially sophisticated) wife to engage your staff to advise her on financial matters.” He said “Absolutely not!” With that much confidence in his own people, I began to understand why they were not developing. In fact, it appears they were fulfilling his expectations completely.

We consistently hear practice owners express doubts about the people they’ve surrounded themselves with. Even if they have great people, they seem to expect them to learn these skills by luck or osmosis. They often are doing nothing to train and develop these skills, or rarely even set the expectation for what they want people to do.

Why don’t advisors do a better job of developing employees into peers? Many attribute it to the values–or lack of values–of the next generation. However, we are not convinced that the problem can be so easily attributed to a younger generation without a work ethic. We see too many 20- and 30-somethings achieve high performance after they’ve had the benefit of good mentoring. The widening gap is often because owners of advisory firms have not invested time, money, or trust in the development of those who work for them, and in many cases, live in fear that their employees might outshine them.

This situation is far from isolated. In our 2004 FPA Survey on Financial Performance, nearly half of the participating firms wished they could change something about their business. Second highest on that wish list, with a 20% response, was changing their staff. (At the top was a wish to change their clients, at 25%).

This widespread nature of the problem has led us to conclude that the screening process for hiring staff at every firm should include an assessment of whether you could ever envision the candidate becoming a partner of yours. If they don’t have that drive, even if they have the technical skills to be a good staff person, don’t make the hire.

As an owner of a business, your job is to create an environment in which motivated people will succeed. Reluctance to make this commitment is deeply rooted in the psyche of most small business owners, financial advisors included. If your people develop too well, will you be creating your own competition? Will they grow to the point of challenging you in terms of how many clients they serve and how much revenue they manage? If they become too successful, will they want to be owners? Can you keep them at your practice?

The last question is usually the biggest concern. The most wary advisors are those who’ve been burned by staff who have left. Often they’ll say something like: “There’s no loyalty in this business anymore.” Yet when asked, those who have left respond: “There’s no opportunity in this firm anymore.”

Unfortunately, there’s no silver bullet for people who chose to “learn from the master,” then try to replicate that in their own practice. Restrictive covenant agreements can help, but firms that create a career path, invest in the development of their people, and ultimately allow individuals to become partners tend to be more effective in locking good people into their practices. That’s because the value of being part of a larger, growing team is far more rewarding than the struggle of going it alone.

With this in mind, we recommend that advisory firms that wish to grow into dynamic practices with individuals who share their values, who will contribute in a meaningful way to their growth, and who would make good partners, embark on a strategy that encourages staff development. This plan should include a clearly defined career path, a framework for how partners are admitted, and clear guidelines on how ownership is obtained.

The Career Path

In our semiannual studies on compensation and staffing for the FPA, we are finding that there is more consistency to staff roles within advisory firms, and consequently, more clarity as to their expectations. (To participate in this year’s study on compensation and staffing, go to: www.mossadams.com/surveys.)

There are four distinct phases in a financial planner’s career before they should be considered for partner (see “The Career-Path Pyramid” below). Here’s how many firms break it down:

1. Analyst. This is a new hire whose primary job is to learn the basics of financial advice, do simple tasks, and become grounded in the language, concepts, and applications of what an advisor does.