When LeBron James announced his game-changing move to the Miami Heat from his once beloved Cleveland Cavaliers, owners, players, fans and even casual observers took notice. The fallout from the decision would leave a gaping hole in the Cavaliers and send an unequivocal message to the league that the Heat had out-maneuvered to position for a title. The level of control exerted by one individual to make or break the success of a franchise is a pointed reminder that an aggressive and proactive talent retention strategy is key to winning performance.
So what can shareholders and executives do to retain their key players? Two leading issues should be front of mind for firm leadership. First, retention is critical to ensure the achievement of sustainable business growth. Second, retention of key individuals is necessary to support a successful internal succession of ownership.
According to The 2009 FA Insight Study of Advisory Firms: People and Pay sponsored by TD Ameritrade, 50% of lead advisors have been practicing for 17 or more years and 25% of lead advisors have been practicing for 25 or more years. The aging demographic of advisory firm owners will force an industry-wide transfer of ownership over the coming five to 10 years, a movement which seems to have escaped the immediate attention of many firm founders. Failure to retain key talent will dramatically reduce the succession options available for shareholders when the time arrives for a transition of ownership.
This article is the final of a four-part Human Capital Series produced by FA Insight in partnership with Investment Advisor, our media partner for this research. This series, relying on the findings from People and Pay, is designed to support advisory firms in their human capital decision making. With this article, we specifically examine how firms can actively implement a retention strategy that will ensure the longevity of talent within the business and thereby support succession and sustainable growth.
Shareholders continue to struggle with identifying succession solutions. The People and Pay study results found that succession planning is limited in firms regardless of their size. While the percentage of firms with a documented succession plan increases as a firm grows in size, more than half of all Innovators, the study’s largest firms with more than $3 million in revenue, lack a documented succession plan. The gravity of these statistics should not be underestimated, particularly given the volume of firms that will be seeking a succession solution over the next decade.
As Figure 1 demonstrates, 64% of firms surveyed do not have a documented succession plan. Another 3% of firms have a documented plan but it is either no longer relevant or does not provide the necessary succession support for the firm.
As shown in Figure 2, 71% of those 36% firms with a succession plan, or just 26% of all firms, have identified a successor and are confident in the readiness of the successor to gain ownership. Nearly one-fifth of firms with a succession plan have not identified an ownership successor at all. Identification of an ownership successor is especially lacking for Operators, the industry’s smallest firms with less than $500,000 in revenue, where just 13% of all firms have identified a successor.