By now, you’re probably tired of hearing that financial advisors usually don’t have any business management training. Of course, that doesn’t mean advisors aren’t highly intelligent. In fact, in my experience, many are voracious readers, studying popular business management books to the point of being able to quote liberally from them.
Three books out of many that have become near Bibles for many advisors are Tom Peters’s In Search of Excellence back in the day; then Michael Gerber’s The E-Myth; and most recently Jim Collins’s From Good to Great.
Yet trying to learn practice management from popular books, however good they are, presents problems of its own (ironically, not unlike clients trying to understand personal finance from what’s on the shelves of Borders). The problem with most management books is that they’re based on observations about Fortune 500 Companies, which of course, have been fabulously successful at one time or another, but tend to be quite a bit larger than the typical advisory firm. For a little perspective, firms with less than $300 million in annual revenues are considered small businesses, which makes even the largest independent advisory firms itty-bitty businesses. Even more sobering, by any reasonable estimation, all the independent advisors in the country taken together wouldn’t make Fortune’s list. So what works swimmingly at companies with $10 billion in sales may not be much help in your practice. Based on their experience with one or two small firms, most advisors’ ability to make that call is, shall we say, limited.
One of the best examples of this is today’s hottest business book, Collins’s From Good to Great. It’s a good read, and an interesting study of what makes great companies, well, great. But the problem with it is–you guessed it–Collins bases his conclusions on what makes very large companies great. That won’t necessarily make your practice great.
In my view, the biggest disconnect between managing large corporations and very small firms like an advisory practice is the different ways in which each needs to approach managing human capital; that is, their employees and junior partners. Collins’s book is a perfect example. One of his fundamental principals is the bus analogy: As a manager you want everyone on your team to be “on your bus.” If they shouldn’t be on your bus (and you get to determine who should and shouldn’t be), then you should ask them to “get off your bus,” which is a cute way of showing them the door.
Perhaps a little folksy for a management book, the real problem with this advice is that it just plain doesn’t work in the average advisory firm. Here’s why. Let’s say you’re a company like GE, which hires thousands of people every year. You have considerable flexibility within your labor pool–your pay scale is excellent, your benefits are better. Combine that with great on-the-job training and almost unlimited opportunities for advancement, and it’s not hard to see why newly minted MBAs are lining up to work for you. So even at the management level, you have a large talent pool to choose from: you can work with the people who seem to fit on your bus, and boot off anyone who doesn’t.
How do you decide who’s a “fit” for your bus? Simple: Look at their job performance. If they’re not a top performer, say, in the top quartile or so, let them go, and bring in some new folks. Then do the same thing–keeping the best and getting rid of the others–until you find yourself with a team of top performers, and your bus is ready to roll. The best part of this strategy is that you don’t have to spend a moment worrying about the high turnover you’re creating, because you have a huge human resources department all geared up to recruit and hire new employees faster than you can fire them. Then there’s another whole team to train them. The bottom line is that large corporations make kicking people off the bus as painless as possible, and consequently, the whole bus thing may have some validity at companies like GE.
Getting On the Advisor Bus
Are you beginning to see the flaw in this strategy, as it applies to firms as small as your practice? I know this is an assumption, but I’m guessing that you don’t have people lining up to work at your firm. Sure, you might get a good response when you post an ad for a job opening, especially in this economy. But are your compensation and benefits and training and career opportunities so good that folks are just dying to come work in your practice? If you can take an objective view, in most cases you’d have to say “probably not.”
What’s more, consider the impact that staff turnover has on your firm: who’s going to recruit, interview, hire, and train each new employee? How much time and effort is that going to take away from the trainers’ real jobs? How long is all this going to take? Who’s going to do the job of the fired employee while you’re looking for and training their replacement? It can take a year or more to get your practice back to where it was when an employee left. If they were experienced and had considerable responsibility, it can take much longer than that. In a case of losing a young professional advisor, it could take you years to get your firm back to where you started: with a qualified replacement up to speed and making a substantial contribution to your firm.
In my experience, many advisory practices today stagnate year after year, due to the effects of normal turnover in their staffs and among their young professionals. In fact, in my view, the number one problem faced by most advisory firms these days is employee turnover, resulting from poor hiring and poor management. Implementing a “get off my bus” strategy like the one Collins suggests–to just keep dealing off the deck of new employees until you find the ones that you like–would simply exacerbate the problem, and sink most firms faster than you can say “really dumb idea.”
The reality is that independent advisory practices typically don’t pay enough, offer good enough benefits, train well enough, or offer attractive enough opportunities to get away with such an “anti-employee” corporate culture. Nor are they going to attract the kind of employees who want that kind of work environment. Instead, small businesses such as advisory firms tend to attract employees with a considerable entrepreneurial bent: Maybe they’re not quite as entrepreneurial as the owner/advisors themselves, but they’re close; Far closer than they are to people with a big-corporation mentality.
Ironically, owner/advisors seem to be most inclined to create a corporate culture that is closer to a big corporation: work 9 to 5 on the equivalent of a time clock, strict vacation policies, straight salaries with little incentives, and with little or no formal training on top of that. Is it any wonder turnover rates are problematically high? Trying to solve this problem with a take-my-bus-or-get-off-it policy is only going to make things worse, probably much worse.
Instead, more advisors need to grasp the fact that virtually anyone who wants to come to work at their little firm, in their little office in a suburban office park, is far more like them than a corporate employee. They also are often looking for the same things that made the owner/advisor go independent in the first place: a non-corporate environment, flexibility, self-determination, an opportunity for personal growth, and a chance to do something they feel good about. Some of them want to become firm owners, either in this practice or in one of their own. Others just want a steady job in good conditions and a bit of flexibility. While the later underachievers wouldn’t stay on the bus at GE, there’s more than enough room for both kinds of employees in a small business.
The Origin Issue
But to build a successful firm, it’s important that advisors understand where each of these employees is coming from, and to consciously create an environment that makes these entrepreneurs, semi-entrepreneurs, and corporate dropouts happy: pretty much the kind of environment that will make the owner/advisor happy, too. So lighten up on the time clock. Yes, you can expect your people to work hard, but if they do, and they get their job done, don’t be so concerned where they are every minute of the day. Be a little looser with the vacation time; again, if they’re getting the job done, and have been around a while, they probably know better than you when they can be out of the office, and for how long. Finally, for heaven’s sake, don’t be so stingy with the profit sharing, or equity in your firm; if your people contribute to the growth of your firm, let them share in it. If you don’t, before you know it they’ll be using the talents you helped develop to grow their own, or someone else’s practice.
Because advisors can’t compete with big companies–or even larger advisory firms–on compensation and benefits, they have to offer other perks to attract and retain high-quality employees. That goes double for professional employees. The most successful advisory firms create a culture of motivation and inspiration and a sense of shared ownership. That way, they grow great employees and keep them around long enough to leverage each other into a fast-growing, client-oriented, fun-to-work-at firm. Isn’t that what you want, too? Oh, and try not to read so many business management books: Their writers rarely have a clue as to the challenges small businesses face, and the best solutions for those small businesses. Perhaps it’s time you kicked them off your bus.
Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at firstname.lastname@example.org.