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.
A robust succession plan requires solid planning with plenty of time allocated for implementation, all of which could prove futile without an active focus on retention of key talent. Here we examine three key talent retention strategies for shareholders and management that will support growth and a well-orchestrated transition of ownership when the time arrives:
For LeBron James the opportunity to team up with Dwayne Wade and Chris Bosh was central to his decision to join the Miami Heat. This is not surprising. Creating an environment where talented individuals can work as a team, inspire, teach and motivate each other bodes well for retention. Such relationships will connect individuals more deeply to the business and drive levels of fulfillment and individual satisfaction. Furthermore, ensuring intellectually challenging and satisfying work will stretch the capabilities of individuals and support them in achieving increased levels of success.
Where possible, management should actively seek to break down silos that limit individual access to senior talent. Collaboration between junior and senior team members should be encouraged and planned proactively to ensure juniors have exposure to various working styles and technical capabilities. Additionally, firms must create a culture of mentoring, where seniors take accountability for the development and retention of others.
Rule 3: Create a Career Path and Develop Talent Internally
Providing a path for individuals to progress internally will encourage them to take a long-term view of their role in the firm by recognizing the opportunities that lay ahead. Of the firms that participated in our survey, 64% utilize their organizational structure to define a long-term career path for each role, providing a formal plan to progress individuals internally. Just 41% of firms assist individual progress through a career path with tailored development plans.
To support the implementation of a career path, individual employee development must be made a priority. Firms’ efforts to develop team members pays off in multiple ways–it gives the staff members opportunities to grow, develop their skills and meet their career goals, while at the same time increases the value of the employee to the firm. Although the development and use of formal training programs within the firm can be an effective way to help individuals develop, 51% of firms do not offer formal training programs to any staff members. Figure 5 further details the availability of formal training programs by the type of position.
To effectively develop individuals along a career path requires a clear understanding of the capabilities necessary to move from one level to another. Figure 6 is an example of how a career path may evolve over time from Support Advisor to Lead Advisor.
Next Up: Growth by Design
Next month, FA Insight is slated to release its follow-on to the People and Pay effort, The FA Insight 2010 Study of Advisory Firms: Growth by Design. In Growth by Design we move from people practices to a review of two other important leading indicators of firm performance–marketing and operations.
Read previous installments of FA Insight’s Human Capital series.
Eliza De Pardo is the principal who oversees FA Insight’s consulting services including Human Capital. Dan Inveen is the Principal that oversees FA Insight’s research services. Formerly, Eliza and Dan were senior members of the Business Consulting Group at Moss Adams. They can be reached at [email protected] and [email protected].