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.
Here are some ways firm owners can use the NextGen’s new-found perspective to maximize their contributions to your firm, both now and for years to come:
Give them a clear picture. For most of us, our natural inclination is to keep our financial situation private, and financial advisors can be more so than most small business owners. Perhaps during good times that can be wise, but I have my doubts about even that. When it comes to bad times, I’ve found that being as forthcoming as you feel comfortable about the recession’s effects on your firm and its owners can be extremely valuable (see Let the Sun Shine In sidebar).
Be up front about bonuses. I believe the best bonuses are based partly on the success of the firm, and partly on what the employees can control themselves. That way, they directly feel the link between the success of the firm and their own fortunes. Many advisors seem to feel they should shield their employees from the harsh economic realities, guaranteeing fixed bonuses regardless of firm performance, and making up any shortfall out of their own pockets. Not only is this practice unsustainable in a prolonged economic downturn, but it creates exactly the wrong impression in the minds of employees–that the success of their firm doesn’t matter to them.
Talk about layoffs. I doubt that anything affects the morale more than coworkers losing their jobs. You might expect that an empty seat or two would motivate those remaining to do better jobs. But it doesn’t work that way. To perform well, people need a sense of security, and most people work harder when they feel they are part of a team. The reality that they could soon be off the team is both unsettling and demotivating.
Sometimes, like now, layoffs are unavoidable. But you can mitigate the impact on your remaining staff by talking to them about what’s going on, how badly you feel about letting people go, and your plan for working together so you won’t have to lay off anyone else, and you can rehire those who left as soon as possible. It also helps if you’re open about how the economy is affecting your firm, so your employees aren’t caught completely by surprise, and they understand your actions aren’t arbitrary.
Show your appreciation. With shrinking staffs and a bigger workload, many owner/advisors find themselves compelled to do things they haven’t done for years. Often they are surprised to find how much work their staff had been doing, and the degree to which that freed up the advisor to focus on talking with clients and attracting new ones. Moreover, with client portfolios shrinking, advisors also discover just how much their staff has done to keep those clients happy over the years. When you can’t show your gratitude monetarily, letting your staff know how much you appreciate what they’ve done, and are continuing to do, can really boost morale. Don’t make any promises, but don’t forget their efforts when your finances turn around.
Grow new experts. Chances are good that your support advisors are going to be helping you by taking on more client work, at a much higher level, than they used to. This greater experience will make them better advisors faster than they would otherwise be. You can maximize their impact by focusing their growth under fire into one area of expertise, say, revising financial plans, or repositioning portfolios, or estate planning. It will be easier and quicker for them to gain greater expertise if their efforts are focused, and it will be far easier for you to train them, and then hand off your work in one consistent area.
Hire wisely. Finally, if you are one of the lucky firms that needs to hire a support advisor or two to handle the flood of new clients, try not to abuse your advantage, and keep their compensation fair. This market will eventually turn around, and despite how it seems today, you’re still trying to hire long-term employees and partners. Creating an incentive for them to leave as soon as they can, with their newfound experience and expertise, is not good business management. Be careful of hiring overqualified candidates just because you can: If your firm won’t eventually offer them opportunities to advance back up to their level and beyond, you’re just setting them and you up for their eventual departure just when your firm is ready to kick into high-growth mode again. Far better to bring in folks who will grow and succeed with you.
Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at [email protected].