Recently, one of my clients, who shall remain nameless, made a big mistake. We agreed that firm finances required she lay off two of her three administrative staffers. After watching her colleagues lose their jobs, the third staff person went to the owner/advisor and volunteered to work half time, if it would enable her to keep her job.
The owner accepted her offer. The problem was that our plan to cut back the support staff was predicated on our assumption that the remaining experienced assistant would pick up most of the slack left by the departed two; she might even work overtime, if need be. By accepting her offer to work less, not more (and thereby saving a few meager dollars a week), the owner created a work overload that is now crippling the firm and client service.
As happens in the growth curve of most small-business-driven industries, over the past six years or so, independent advisory firms entered a phase where human capital–employees and partners–became the driving force for growth. In today’s severe recession (let’s avoid the “D” word), advisors are now dealing with the other edge to that powerful sword: managing their workforce in a declining revenue environment. As I’ve written before, independent advice is unique in the fact that workload tends to go up–greater client needs and more new clients–when cash flow goes down, putting even greater emphasis on getting your human capital equation right. The good news is that if you do, your staff and your firm will be much better for this challenging experience.
If for no other reason, the entire advisory industry will be better off for the radical attitude adjustment that the NextGen advisors are currently going through. As that first story powerfully illustrates, in the course of one short year, young advisors have gone from a very strong sellers market where competing firms offered them previously unheard of compensation and benefits, to a buyer’s market in which they feel lucky if they can keep or get a job. With hiring plans almost universally on hold, and many firms laying off or considering laying off employees to deal with their new economic realities, the prospects for young advisors these days are as dismal as we’ve seen.
A New Appreciation
At the same time, NextGen advisors are gaining a new appreciation of what firm ownership involves. When your only exposure to the advisory business is the booming past eight years or so, it’s easy to wonder why firm owners take home such a lion’s share of revenues, or downplay the seemingly nonexistent risk that ownerships entails. No matter how the current crisis works out, that’s one mistake that NextGen advisors will never again be able to make.
Watching senior advisors deal with the tsunami of frightened, upset, and/or confused clients while revenues fall precipitously, revising plans for a very uncertain future, making hard business choices almost daily, and all the while quietly wrestling with the sinking feeling that they’ve somehow let their clients down, amounts to a PhD in what it means to own a professional business, and why good advisors are worth every penny they’ve ever made.
While NextGen advisors and supporting staff are learning to see their owners and their own jobs with new eyes, it’s essential for the future and present success of the firm that owner/advisors resist the temptation to take advantage of their situation. Young folks who undergo this experience will undoubtedly be better employees, partners, and eventually firm owners for it. Of course, you need them to go above and beyond to help you service your needy clients and maybe even take on some new ones. So now is definitely not the time to be petty, self-destructively cheap, or heaven forbid, vindictive. In fact, the silver lining of tough times is how they tend to bring people together, to form bonds that strengthen relations and form the basis of great businesses.