I’ve received a number of e-mails about my May column “Coming of Age” in which I pointed out that the recent economic downturn has flip-flopped the job market for young financial planners: Instead of a “seller’s market” where they had many job offers and commanded high compensation packages, we now have a “buyers” market, in which a limited number of job opportunities put potential employers in the proverbial driver’s seat.
Many of the e-mails ask the same question: Since the down markets affect firm economics, too, how do advisors decide when is the right time to hire a new advisor?
Here’s my take: This is an excellent question in that it implies a caution for simply jumping at what appears to be an excellent opportunity to execute a hiring plan that was probably devised in a different economic environment. This market meltdown has indeed ushered in a new economic reality that we should conservatively assume will be with us for some time. With that said, one of the great advantages of the independent advisory business is its relatively low overhead and resulting high cash-flow margins even in the low points of its business cycle.
That means even though the revenues in your practice are probably off a bit, it’s likely that your firm still has the cash flow to invest in a new professional employee if you have a good reason to do so. What’s a “good reason?” I think in this environment there at least two.
? First, by far the most important asset in an advisory practice is its existing clients. It’s probably taken you years to build your client base, attracting new clients and weeding out the ones that aren’t a good fit, to finally get a solid, stable group that are right for you, and vice versa. So your primary job, and the cheapest marketing you’ll ever do, is to keep the clients you already have. If the increased workload over the past several months has put a strain on you and your existing staff, and your client surveys are beginning to show some dissatisfaction (or if you’ve actually lost some clients), then you should seriously consider bringing in someone to help get your firm back on track. Better positioning your practice for growth when things begin to turn around is icing on the cake.
? Secondly, if you want to grow your firm and have a solid business plan to do so, even in this economy, that’s how many of today’s most successful practices were built. Perhaps you want to add services–such as trusts and estate planning, taxes, or business planning–that will not only enhance your relationships with existing clients, but expand your target market. Or maybe you’ve posted exceptional investment performance (when many of your competitors have not), and want to expand your marketing efforts to bring in additional clients and AUM. As long as you have a reasonable expectation that your new advisor will either leverage you to bring in the new business you want, or will add an expertise that will bring in new business on their own, now is an excellent time to invest in growing your firm.