There sure are a lot of surveys of advisory practices these days; Moss Adams, the FPA, Quantuvus, the myriad Schwab studies, and the FA Insight survey conducted in partnership with Investment Advisor. I’ve said for years–and now it’s more true than ever–that I could make a career out of just translating the studies into a format that advisors can both understand and readily use to make their practices better.
The problem isn’t with the surveys themselves, it’s the way they are presented; they all take considerable time and effort to decipher, and then determine the essential takeaways for a particular practice. That’s time that most advisors aren’t willing or likely to invest. So it falls on consultants like me to interpret these surveys and boil them down into action items (if any) for my clients.
The surveys I get asked about most are compensation studies, which purport to poll various groups of advisory firms on how much they pay employees and owners, broken down by the jobs they do. They then create salary and total compensation ranges, but size of firm, geographic locations, and/or other frequently undisclosed factors are often left out. Owner/advisors, then, try to use these tables to determine whether their compensation levels jibe with other similar firms.
Over the years, I’ve come to understand how the various studies collect and present their data, and how to mine that information and repackage it so that my clients can use it to see how their compensation structures compare to industry norms. Here’s a brief description of what I’ve learned, and how I use all this study information, to make it easier for advisors who are so inclined to sort it all out for themselves.
What Your Peers Are Reading
While there are many problems with the existing surveys, the biggest challenge is that most if not all surveys are based on assumptions derived from the largest of advisory firms; those with a dozen or more employees and upwards of $5 million or more in annual revenues. While certainly well within the “small business” category in business management circles, these larger advisory firms bear little resemblance to the vast majority of advisory practices, which have less than $2 million in annual revenues.
That’s not to say that most surveys don’t include these smaller practices; they do. But they look at jobs and job titles based on business school models, which is way different from how most advisory firms work in the real world.
Larger advisory firms, like most larger businesses in general, have the luxury of allowing their owners, professionals, and staff to focus on specific jobs–advisors work with clients, rainmakers go out and get new clients, portfolio managers manage portfolios, IT people work on systems and hardware, back-office people execute and monitor trades, receptionists answer the phones and greet visitors. Sure, some folks will wear more than one hat, but the number of hats is limited, and usually still enables them to focus most of their time on their primary job.
The Multiple-Hat Issue
Smaller firms–which constitute the vast majority of advisory firms–don’t have that luxury. Smaller firms need to perform essentially the same jobs as larger firms (on a smaller scale, of course) but when you only have one or two advisors and one or two staffers, those people are going to have to wear multiple hats, quite often spreading their time and efforts over half a dozen jobs or more. An owner/advisor will often work with clients, bring in new clients, oversee compliance, manage investment portfolios, manage the office, be the financial officer, etc. A junior advisor often works on portfolio monitoring, and investment screening, the firm’s Web site, executes the trades, generates quarterly reports, and writes the financial plans.