Not too long ago, a senior wealth management executive from a large bank in Chicago was quoted telling InvestmentNews that “the trusted advisor is being replaced by an institution.” We love reading things like this because it tells us that the big firms continue to view the investment landscape as they want it to be, rather than the way it actually is. In fact, study after study shows the independent channel continuing to take market share from wirehouses and big banks. One of the reasons for this is that, as a group, large national financial service firms do a poor job retaining their best talent, which forces them into an institutionally sterile approach to client relationships that relies more on brand than on substance or talent.
While this model of “institution first” may dovetail perfectly with the idea that clients should view institutions as trusted advisors, it works poorly in practice. When a large institution loses clients’ trust, it undermines its whole brand. More importantly, when management places the institution ahead of its people, it encourages advisor turnover, the single biggest impediment to a successful advisory practice. Large financial firms further bring turnover upon themselves by trying to grow their businesses by purchasing successful advisors’ books of business. If someone is going to pay advisors well into seven figures to move their book of business every five or so years, who can blame them for cashing the check?
We view it as a key competitive advantage to build a firm culture that makes advisors (and other employees) want to make our firm their last career stop. Part of our success in lowering advisor turnover has been during the interview process—specifically, trying to find people who are looking for their “last stop.”
Perhaps the biggest challenge larger firms face is their failure to recognize the need to align advisors’ interests and incentives with those of the client. This has been lost in the drive to institutionalize client relationships.
The first misalignment is compensation-driven and comes from the perverse 80/20 rule that is prevalent at many large firms. Too often we’ve heard from candidates that their current employer wants advisors to spend 80% of their time looking for new business and only 20% servicing existing business. While incentivizing advisors to focus on attracting new business seems to make sense, this type of incentive plan fails to recognize that the best source of referrals could (and should) be existing clients. By incentivizing advisors to underserve existing clients, the large firms are sabotaging their best source of referrals.