In my last two columns, I wrote about how bear stock markets ironically provide the highest growth rates for many advisory practices, and I suggested ways you can position your firm and your staff to capture your share of this windfall including: focus on your target clients, systematize operations, don’t micro manage, anticipate problems, and communicate with your staff about what to expect and how you’ll deal with this new environment.
Yet, the more successful advisory firms are already positioned for growth. They face a set of challenges that largely revolve around recruiting professional talent in a down market. In times like these, most advisory practices tend to put their recruiting plans on hold, waiting to see what the impact will be on firm revenues and client growth. On the other hand, the more successful firms are structured around growth, so they are always recruiting. In tough times, they anticipate an influx of new clients, so if anything, they look to add even more people. And while recruiting during down markets can present a whole new set of rules–if they’re not careful, even the best firms can run into problems–firms that get it right have an opportunity they may never get again: a chance to attract experienced young advisors.
The first pitfall comes when advisors accelerate their recruiting efforts to meet the flood of new clients. When you feel pressured to add bodies, it’s easy to cut corners and take short cuts in the recruiting process; easing up on background and reference checks, cutting back on the screening and number of interviews, focusing more on “selling” recruits on the job, and even simply lowering one’s job requirements. However understandable these half-measures are, this is also, of course, a recipe for future problems.
The successful growth of any advisory practice largely depends on hiring the right people for the right jobs. During periods when a firm is under stress–such as during extraordinary client growth–the need for the right people becomes more acute, not less. And shortcuts in the recruiting process often create even more management problems for firm owners and senior advisors, at a time when their time is already stretched dangerously thin. Sorting out problem employees in the wrong jobs is a challenge for most advisors during the best of times: at critical times such as these, it can push a practice into stagnation, and often into decline.
The next problem comes when firms do stick to their standard recruiting process, but find it difficult to attract the “right” young professional, or sometimes, anyone at all. With many advisors putting their recruiting temporarily on hold, the available supply of high-quality young folks coming out of financial planning programs should be increasing from its low levels of last year. But with that said, good young planners are always in demand, and finding the “right” fit for your firm almost always takes way longer than people expect.
Consequently, advisors with rapidly growing firms have a tendency to get frustrated with their lack of immediate recruiting success, and attempt to solve their work overload problem by over-hiring administrative help. [Because there's a lack of consistency with the terms used to describe various functions in advisory firms, let me at least tell you what I mean: a professional is someone with an education and/or credentials that puts them on a career track to directly advise clients. Administrative people are everyone else at the firm, from the receptionist, to the back-office staff, to paraplanners. From a financial viewpoint, professional compensation is subtracted from gross revenues as a direct expense on your P&L, while admin comp is classified as overhead.]
Hiring administrative people is always an attractive option because they are usually easier to find and hire, they cost less, and it takes much less time to bring them up to speed at their jobs. Yet, over-hiring admin help presents myriad issues, but the two most critical are: 1) your admin staff can’t clear a senior advisor’s plate of many of the more labor-intensive tasks involved in setting up a new client–writing financial plans, data gathering, follow up questions, creating investment portfolios, and reviewing insurance, wills, and other current documents; and 2) When markets turn and client growth slows, most advisors can’t bring themselves to let people go, so instead, they allow their overlarge staff to eat into their profit margins.
Ironically, firms who stay the course of hiring young professionals often find that recruiting is actually easier during down markets. For one thing, as I mentioned earlier, with many firms putting their hiring on the backburner, there are more qualified candidates from which to choose. Not only is this true in the larger metropolitan areas where most young planners prefer to begin their careers, but with fewer job opportunities, recruits are often much more likely to entertain jobs in smaller cities and towns than they would have been just last year.
Secondly, many firms mismanage their increased growth during times like these, so their overworked and frustrated young professionals start looking to make a lateral move to a firm that’s less chaotic. This can be huge, because experience young professionals can have a much larger impact, much more quickly, than can their less experienced peers. It’s hard to overestimate the savings in time, effort, and dollars of hiring advisors who got years of training and experience and maturity on someone else’s nickel.
I’ve written before about the tremendous advantage that the growing number of larger advisory firms (with revenues in excess of $5 million a year) when they use their financial muscle to lure experienced young advisors away from the shops that trained them, with higher compensation, better benefits, and greater opportunities for advancement. In fact, I believe that the success of small advisory firms will increasingly depend on their ability to rise to this challenge, by finding formulas that enable them to retain their young professionals, and even recruit advisors away from the larger firms.
The challenges that a down market presents to most advisory firms creates an opportunity for some well-positioned firms to do just that: to recruit highly valuable, experienced young advisors who are looking for a more fair, less stressful place to work. If you’re like many advisory practices today, this may be one of your best chances to turn the tables on the big firms, and steal a blue-chip player or two.
Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at firstname.lastname@example.org