Although the stock market is still struggling, there’s one market in America today that is climbing to new highs almost daily: the market for experienced junior advisors. The recovery in the independent advisory business has combined with aging baby-boom advisors’ looming need to develop internal succession plans to create a demand for young advisors not seen in recent memory—if ever. Virtually every one of my own clients currently is looking for a junior advisor, and judging by the difficulty we’re having finding suitable candidates, so is every other advisor in the country.
Judging from the ridiculous level of compensation in the market for experienced advisors, many advisors today are paying increasingly higher “top” dollars to attract younger advisors in the hope they will become their transition solutions. I’ve written about the dangers of hiring “star” advisors before (too high expectations + too little training = disaster). The current situation, however, has taken that flawed formula to a whole new level, jeopardizing the retirement plans of many owner/advisors along with it. In fact, things have gotten so out of hand that we’ve stopped trying to hire experienced (or lead) advisors altogether and created a grow-your-own future partner strategy that virtually guarantees success. The key is what owner/advisors do with newly hired advisors in their first six weeks on the job.
Here’s the problem with hiring experienced lead advisors: If they’ve reached that level at their previous firm, they’ve almost always left seeking higher compensation. And in this market, no matter how much you pay them, in two years they’ll be able to make a lot more somewhere else. Not coincidentally, our research shows that the average turnover for newly hired lead or senior advisors is just over two years. That means only if you’re lucky will you keep that high-priced, star advisor for more than two years. The rate of transition to successor is much, much lower.
If hiring experienced advisors to grow and transition advisory firms is a bad bet, what’s the alternative? We’ve devised a two-part strategy that greatly increases the odds of success. As I mentioned, we don’t hire experienced advisors anymore. Instead, we hire younger, usually associate advisors. In fact, rather than hire a lead advisor, we’ve even hired client service reps from good firms.
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The first step in our strategy is the realization that at today’s inflated compensation levels, we can hire two associate advisors for what it will cost us to get one experienced lead advisor. That means we’ve doubled our chances of hiring a future owner/advisor from the start. And if we do that every time we hire a new advisor, we’ve increased our chances of success exponentially. If a firm were only to do this, it would save millions of dollars in time and turnover costs.
Hard as it may be to believe, the second step is actually the more important one. It’s based on this simple notion, which is well-supported in general employment literature and confirmed in my own work: Within their first six weeks of employment, professional employees will decide whether or not they are going to be with their new firm for the long term. At the associate advisor level, if they decide not to stay they’ll usually leave after between two to four years so they can get a higher level job. The firm will have wasted those years in time and training and be back to square one as far as finding a new partner.
By hiring two junior advisors, firms obviously can cut those odds in half. But half isn’t nearly good enough with today’s very high turnover rates among young advisors. The problem is that because junior or associate advisors are expected to play a supporting role rather than generate new revenues for the firm, most owner/advisors don’t take them seriously. They start them out on menial tasks, with little or no training or attention. When young advisors who see themselves as professionals (albeit junior professionals) are given clerical tasks, they decide not to make a long-term commitment to the firm.
If you take nothing else away from this article, remember this: An advisory firm has six short weeks to convince new advisors it is worthy of their long-term commitment. If firm owners blow that chance, they can almost never undo it later. What many owner/advisors don’t seem to understand is that the success of their firm—and their retirement—depends on those young advisors. Young advisors have plenty of time; they can get other jobs (for more money), and they can afford to make mistakes. Owner/advisors are on the other end of the clock: They have a much shorter time frame, and it’s getting shorter every day.