Close Close

Practice Management > Succession Planning

Building a Talent Hothouse

Your article was successfully shared with the contacts you provided.

With just two associate advisors available to replace every three lead advisors; creeping compensation costs for advisory positions; and woefully low levels of succession planning (just 34% of firms reported having an effective succession plan), the demand for top talent is outstripping supply. Combined with a dramatic experience gap between today’s most senior lead advisors relative to other advisory firm positions, our survey data provide strong justification for enhanced development of homegrown talent.

The industry’s talent shortage is an old phenomenon that is re-emerging as a central issue. As independent advisory firms recover from the 2008–2009 security market downturn, ensuring a steady supply of qualified labor is once again a critical factor for business sustainability. The good news for advisory firms is that a solution is close at hand, but with one key proviso: Firms must create an environment where talented people can flourish.

These findings and conclusions stem from “The 2011 FA Insight Study of Advisory Firms: People and Pay,” our second examination of this topic since 2009. FA Insight, in partnership with Investment Advisor, released the study in the fall of last year. The current “People and Pay” study provides concise recommendations for addressing human capital-related challenges that are fundamental for growing a firm, building value and preparing for succession. In this third article of the 2011 “People and Pay” series, we share excerpts of the study as they relate to effective organizational design, career path planning and people development—all critical components for bridging a rapidly widening talent gap.

The Build Out

Lewis Carroll said it best: “If you don’t know where you are going, any road will take you there.” Organizational design is an obvious but often overlooked foundation for growing talent. Only 14% of advisory firms surveyed have developed a plan for how their organizational structure will change as they grow (see Figure 1, right). Why does this matter? The organizational structure is the blueprint dictating which positions will be required at what points in the firm’s growth. The structure also defines how responsibilities will be divided between positions, how each position will interact to deliver the client experience and to whom each role will be accountable. Moreover, the structure provides the framework for advancing team members along a career path. Despite delivering several advantages, organizational design is a relative weakness for firms of all sizes.

It’s Just That Simple and It’s Just That Hard

As always, nothing worth having comes easily. To effectively set a firm’s organizational structure in order to take the guesswork out of recruitment and internal people development requires an investment of management time and effort. The process involves mapping a transition plan from the current organizational structure to a targeted future structure based on the achievement of predetermined key financial milestones.

Position descriptions will further serve to support implementation of the structure by clarifying expectations for individual roles and defining required skills and experience for each position. Just 38% of firms surveyed have documented and up-to-date position descriptions. Nearly 30% of firms indicated that staff members are unaware or unclear of their role responsibilities. The implications for this are significant. With individual accountabilities unclear, productivity will be hampered and structured progression from junior to more senior positions will raise challenges regarding levels of accountability.

The Career Pathway

Movement of personnel into progressively more senior positions to support retention and growth is a desired outcome that eludes many advisory firms. An inability to progress staff may reflect poor hiring for some firms. For others, limited attention to the long-term aspirations of team members may be the cause. To facilitate upward movement, a career path acts as a guide for where an individual will have the opportunity to progress and the skills and experience that will need to be developed in order to advance. Formal career path planning is limited, however. Almost one-third of firms surveyed are yet to implement career paths for any position type within the firm (see Figure 2, above). This represents a large opportunity for advisory firms to better engage their people regarding their future career aspirations by setting a plan for their advancement.

Irrespective of firm size, firms must be able to demonstrate to their staff the opportunities for advancement that will come with future growth. All position types benefit from having a career path, but the need for an internal career path for each advisory role is most vital for sustainable growth. A key indicator of a firm’s ability to progress talent is the existence of all three advisory positions. These include the support, associate and lead advisors as defined by FA Insight in the “People and Pay” study. Even among the industry’s largest firms, internal progression of advisors requires attention, with less than half of these firms reporting that they employ all three advisor level positions.

Sustained People Development

Advancing team members internally along a defined career path will be impeded without enhancing individual capabilities. On average, firms spend less than 1% of revenue on personnel development. This is relatively consistent across all firm stages. Similar levels of investment in personnel development were observed in 2009. The level of expenditure on development is likely not as important as the quality of the training provided, however. For example, firms may be utilizing internal training delivered by senior team members and avoiding more expensive external training costs.

Once the career path is set, an individual development plan must bring the career path to life to coordinate training in the areas where the largest skill gaps have been identified. Approximately half of all firms surveyed create individual development plans. An effective development plan requires that managers hold routine development discussions with team members. These discussions should ensure progress is being made in key areas, new training priorities are identified and training is completed. This investment in individual development demonstrates the firm’s commitment to the longer-term retention and progression of talent while enabling team members to contribute additional value to the firm.

Well Within Reach

Creating an environment that encourages homegrown talent to thrive and advance is an obvious solution for firms seeking sustainable growth in a climate where talent is in short supply. Representing 80% of an advisory firm’s costs, people are at the core of every successful advisory firm. Implementation of the practices outlined across organizational design, career paths and formal professional development will ensure that a firm gets the highest return possible on its most important resource.

More to Come

In the months ahead, Investment Advisor readers can look forward to a fourth and final article in the current “People and Pay” series that will examine challenges related to the transition of equity and standards for ownership.

For further human capital guidance, including detailed compensation and financial benchmarking data, readers are encouraged to order the complete “2011 FA Insight Study of Advisory Firms: People and Pay” at For firms seeking advanced support on human-capital-related challenges, please contact FA Insight directly.

Read the first article in the People and Pay series, “Endangered Supply,” about how to attract and retain the right employees.

Read the second article in the People and Pay series, “Sounding the Alarm,” about the critical role team management plays in succession planning.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.