FA Insight’s 2011 advisor study focuses on human capital and what it means to advisory firms. As firms grow, so does their need for people to run it—and so do the firm’s expenses.
Consequently, firms need to be strategic about how and who they hire. Building a strong practice is not just about attracting and retaining talented people, but about putting them on a path to leadership to meet the firm’s inevitable succession needs.
The 2011 study looks at human capital both from the perspective of a young firm trying to build a capable team and an older firm facing important decisions about its future.
Endangered Supply: The 2011 People and Pay Study, September 2011
For advisory firms, people represent the critical ingredient for growth as well as building value and effective succession planning. Achieving these objectives, however, will require firms to shore up weaknesses with regard to how they deploy and develop staff. Reflective of growing labor scarcity, compensation levels are on the rise again, retention is at risk and the source of the next generation of firm leaders is unclear.
With “The 2011 FA Insight Study of Advisory Firms: People and Pay,” FA Insight endeavors to support advisory firms in confronting these challenges. People and Pay, our recently released third annual industry study, is our second study with a special focus on human capital. A primary intention of the 2011 People and Pay study is to assist firms to not only attract and retain the right individuals, but to map a path that progresses people toward ownership and management responsibility.
Sounding the Alarm: The 2011 People and Pay Study, January 2012
Lately an advisor can rarely open a trade publication without coming across at least one article focusing on succession planning. Most of these columns center on how dire the problem is with the hope being that couching lack of preparedness in such alarming terms will inspire advisors to action. Outside of recommendations to begin succession planning sooner, specific solutions are often in short supply.
Frankly, based on our research history we are guilty of perpetuating the succession fixation as well, citing in our recently released “2011 FA Insight Study of Advisory Firms: People and Pay” that lack of preparedness for succession presents “the greatest vulnerability for all firms.” The latest FA Insight study goes further, however, in striving to identify why succession is such a serious challenge and recommending key areas of focus for advisors to improve their preparedness.
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.
Across all stages of development, better-performing advisory firms distribute equity more broadly among their team members. While firm owners often view transferring shares as a way to “cash out,” distributing shares is as much about creating value as it is about realizing value. Sharing equity with team members can serve as a powerful incentive for attracting and retaining key talent. Broader equity distribution also improves succession options by reducing the amount of shares that owners need to liquidate prior to their exit while concurrently creating a pool of acquirers for any future equity transition.
“The 2011 FA Insight Study of Advisory Firms: People and Pay” provides strong proof that the benefits associated with distributed ownership have a meaningful impact on the performance and, ultimately, the value of an advisory firm.