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Practice Management > Compensation and Fees

The Fast Track: Where Credit Is Due

By Angie Herbers

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It’s been quite a year, but it looks like the worst may be over: AUMs are back up to at least healthy levels, you’ve kept most if not all of your clients, and you and your advisory firm survived. So give yourself a warm pat on the back, kick back and have a drink or a juice, if that’s your inclination, and take a deep breath. Then roll up your sleeves, because it’s time to go to work.

Just as in the aftermath of a hurricane, it’s great to have survived a financial crisis, but there’s plenty to do. First, you need to clean up the mess, then assess what you have left, and finally you need to figure out how to best move on from where you are now. Here’s a clue: Where you actually find yourself now is probably not where you think you are.

For independent advisors, major economic downturns like the one we’ve just lived through can’t help but change their practices. Some of those changes are obvious: you let some folks go, you cut or postponed some bonuses and/or compensation, and you and your staff worked longer hours. Yet the crisis also more than likely changed your firm in ways that aren’t so apparent but can profoundly affect your practice and its future. The most important of these changes is the effect on your staff: the folks who pulled together, knuckled down, and went above and beyond to ensure that you still have a firm. How well owner/advisors understand those changes–and what they do in response to them–will determine the success of their firms for many years to come.

I’ve recently become aware of a looming advisory industry crisis through a flood of e-mails from young advisors around the industry. Their complaints are surprisingly consistent: “During the economic downturn, I stepped up, took on more duties, worked longer hours, for the same or even less pay. I’m not complaining–I was happy to do it. Now the crisis is waning, my owner/advisor is working less, playing some golf, but I’m still working those longer hours and doing those additional jobs, with no adjustment in pay. When will my contributions be recognized?”

Time for Owners to Step Up

Beginning to see the problem here? It’s really two-fold: First, you’re staff stepped up, took on more work, did more jobs, all without more compensation when you couldn’t afford it. Now that you can afford it, you need to step up. If you don’t, morale will erode, people will begin to feel exploited and unappreciated (if they haven’t started to feel this way already), and productivity and service quality will plummet.

Second, as the advisory industry is recovering from the massive hit it took to revenues on AUM, firms are starting to replace people they let go, and to think about hiring to take advantage of what many are seeing as a substantial growth opportunity. This means the job market for young advisors is beginning to heat up again–and you’re probably sitting on one or two young advisors whom you’ve paid to gain the invaluable experience of weathering a market crash, while they expanded their on-the-job training in a broader array of advisory jobs.

That means they’re far more valuable than they were just a year ago–and if you don’t recognize that financially, some other advisor probably will. Then, of course, you’ll have to replace them with someone else’s more experienced talent, and in a seller’s market. That’s not a formula for continued success.

The bottom line is that while you had your nose to the grindstone, peddling through the crisis, your firm has changed. Your junior advisors are more seasoned and more experienced. Your staff is doing whatever it takes to keep your clients happy and your doors open–much of it in ways that you don’t know about. And both have demonstrated a loyalty to your firm, and a commitment to its–and your–success.

Now that the crisis is past, your job is to reintroduce yourself to your new firm, and figure out how best to manage it. A good first step is to schedule a staff retreat, which was probably put on the back burner when revenues were falling.

There’s nothing wrong with a customary speech about how grateful you are for everyone’s help and sacrifice, even with a small bonus or some other token of your appreciation. But the real purpose of this retreat is for the owner/advisor(s) to listen and learn how the members of their staff stepped up, the time they put in, and what were the various jobs they actually did to cover the workload, and service the firm’s clients. It’s about the staff, not the owner, so your real job here is to listen first and ask periodic questions that help your folks fully describe how your new firm really works, and who is doing what, exactly.

Taking Concrete Steps

I’ve found that simply asking your junior advisors and staff how their jobs have changed goes a long way toward increasing motivation, but to get your firm back on a solid foundation requires some concrete steps to support the changes that the crisis has wrought:

Have your employees track their time. Getting people’s descriptions of how their jobs have changed is a good start, but even the best perceptions can be off. To find out what everyone in your firm–including you–does during the day, there’s no substitute for writing it down: what tasks you are currently performing, and for how long. To get an accurate picture, you probably need everyone to do this for a week, or even two. Then, armed with what your people are really doing, rewrite their job descriptions (see “How a Firm Works Best” sidebar).

Once you truly understand what everyone is doing in your new firm, it’s time to reconsider their compensation. This is especially critical for your professional employees. As I said, your junior advisors are now more seasoned and more experienced. They’ve probably taken on more jobs and new responsibilities. They are therefore of more help to you, and more valuable to your firm. Expecting things to simply “go back the way they were” is unrealistic: it’s bad for them, and bad for your firm. Your job is to figure out how best utilize their new value in your firm. If your junior advisors can now handle more of the financial planning, portfolio management, and even client contact, then that will free you up to bring in more new clients. If you’d prefer to work with clients, then perhaps they can do more of the rainmaking. The point is, you now have a more experienced, better-trained team: to keep them, you’ll need to increase their compensation. Tieing that increase to firm growth is usually best for everyone concerned.

You’ll probably need to rewrite your firm’s organizational chart. In smaller firms, the pecking order may not change, but job titles probably will to reflect changes in responsibilities. In larger firms, new responsibilities can substantially change who reports to whom, and other management responsibilities. The important thing is that your new org structure accurately reflect and communicate the new realities in your firm, so everyone understands just where they now fit in.

Rewrite the firm’s processes and procedures. Often during times of excess workload and stress, the way a firm services its clients will change. Usually, but not always, these changes are for the better. You and your staff need to determine how you’re doing things differently, and whether it’s best to keep those changes. If so, then those new approaches and strategies need to become part of the firm’s formal processes and procedures, again, so there’s no confusion about what needs to be done, when, and by whom.

Finally it’s time for the owner/advisor to meet one-on-one with each employee for a performance review. This should be done as soon as is practical, rather than waiting for employees’ annual review dates. It’s an opportunity for owner/advisors to be sure they understand each employee’s new role, and that they and the employee are on the same page. It’s also a formal acknowledgement that things are truly changed, and will remain that way going forward. This is an opportunity for the owner/advisor to thank each employee for their loyalty and their contribution to the firm, and to acknowledge their increased value and importance to your future success.

Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at [email protected].

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