Over the years, I’ve written about solutions for many of the challenges that advisory firms face as they grow larger. By far, the greatest of those challenges is managing the growing ranks of professional and staff employees. As in many businesses, when advisory firms get large enough, usually around the $5 million in annual revenue mark as we see in my client firms, they typically create human resources departments to take most of the employee management burden off the desks of partners.
While these departments can indeed perform many of the mundane tasks required to administer firm employees, they also introduce a level of bureaucracy that many advisors went independent to avoid. Moreover, that bureaucracy can undermine the productivity levels that make independent firms successful.
I’m not dumping on HR departments here. Administrating employees is a real pain, and many owner-advisors quickly realize they’d much rather pay someone else to do it so that they can spend their time working with clients and building their firms. Managing payroll, overseeing benefits, organizing reviews, maintaining employee files, recruiting and researching industry compensation levels are all labor-intensive, time-consuming tasks that are most efficiently and competently done by people who do them regularly. In fact, we recommend that our client firms hire someone to handle these HR functions full-time when they reach 15 or so employees.
With that said, we also recognize that HR departments can also cause problems—when firm owners and other supervisors shift too many of their responsibilities to them.
We’ve found that perhaps the most important job of an owner-advisor is to instill a sense of mission, of purpose, to his or her employees. Great business owners know that the success of their firms depends on the belief of every employee that what they are doing is important, helpful or good for someone, and, in a large or small way, makes the world a better place. In advisory firms, this is relatively easy, as their mission is to help people better manage their finances to send their kids to college, provide healthcare, retire comfortably and, hopefully, provide for grandchildren and/or other dependents. Each employee’s role in providing these services makes them important, too.