Managers have to be willing to lead their employees, even the 'challenging' ones. (Illustration: Robert Neubecker/The Ispot.com)

I am beginning to think that the financial advisory business is suffering not from a talent shortage, but from a management shortage.

Since 2008, we have lost more than 40,000 financial professionals from across all channels of the industry. The average advisor age continues to rise, with more CFPs over the age of 70 than under the age of 30. I can’t help but scratch my head about these trends when most advisors report that their careers are financially rewarding, professionally fulfilling and designed to impact the lives of others. Yet young people are not attracted to our profession — why?

My epiphany about the root cause of this shortage occurred over several months of conferences and client meetings at which I perceived an almost universal aversion to the employee recruitment and development process. Firm owners expressed enthusiasm for attracting and serving clients — and dread for handling employee issues, especially those related to “challenging” employees.

Advisors continue to chant the same tired refrain: Younger employees “don’t want to work hard, don’t want to develop business, and want to be promoted to the top of the org chart after two years on the job.”

The millennial stereotype is bunk, of course. People who have little experience in management tend to blame failure on the source of their pain, rather than work to create a thoughtful solution.

Why do advisors often struggle when it comes to difficult employees, suffering in silence over the incompetence, intransigence or indifference of people in key positions? Perhaps it is a fear of conflict. More likely, this reluctance to manage may come from a lack of understanding on how to do so effectively.

As when developing any skill, the mastery of management techniques requires countless mistakes. One cannot become a master by avoiding challenges. Over my career in a variety of leadership roles, I experienced many cringe-worthy moments that ultimately became teaching moments. These lessons taught me to have a process, a method of measurement, a means of holding people accountable and a commitment to being transparent with others in the organization. While not foolproof, a discipline around hiring and development improves one’s odds of success with employees, regardless of whether they are entitled millennials or cynical boomers.

The first step in creating an effective human capital strategy is to develop a statement of cultural values. Unlike a mission statement, your cultural values statement doesn’t have to be a pithy phrase. Your strategy provides a framework for how you expect all employees and partners to conduct themselves. Ideas include “pursue excellence,” “act with integrity,” “commit to life-long learning,” “accept accountability” and “demonstrate respect.” This explanation of a firm’s culture helps leaders reinforce behavior and develop a strong team.

Job descriptions must be clear as well — not just the mechanical elements of the role, but also a definition of excellence. The combination of cultural values and job expectations (including those for partners) sets the foundation for performance evaluations.

Performance evaluations should be conducted at least once a year and ideally twice, with periodic check-ins on critical areas throughout the year. Within service businesses, I am particularly keen on 360-degree reviews for partners and up-and-coming leaders. This format includes evaluations by an individual’s seniors, peers and subordinates, and follows a prescribed structure and set of questions. In small firms, an outside coach may capture responses to keep the feedback anonymous. That same coach may conduct performance evaluations of partners, or at least the managing partner. In one of my previous firms, we rotated members of the executive committee to evaluate the managing partner.

Every performance evaluation should include positive and constructive assessments of the individual. There should be at least one area for the individual to work on even if it seems trite. Examples include improving speaking skills, becoming a better delegator or enhancing a particular technical skill.

Advisory firms often fail to systematize the performance evaluation process. While sometimes uncomfortable, this process gives leaders the opportunity to take corrective action with partners and employees. It also provides a systematic means for communicating the firm’s expectations about behavior and performance. Age should not be confused with maturity or skill when it comes to performance. We all need to be called out when something we are doing needs attention.

Hiring Is ‘Science and Art’

After 40-plus years in a variety of roles, I have developed some fairly clear ideas about what enhances job performance. First is clarity around the nature of the work: What exactly do you want the person to do and how will they know what success looks like? Second is clarity around the nature of the worker: Is he or she well matched to the work in terms of aptitude, motivation and interest? Third is the nature of the workplace: Assuming you’ve hired people suited to the jobs, are you creating an environment in which motivated people will flourish?

Recruiting, selecting, evaluating and grooming employees combines science and art. It’s hard to know what makes people tick and whether the environment and opportunity you’ve created is right for them. I have hired many qualified people who seemed perfect for the job but did not work out; this process is not exact. Nonetheless, the odds of retaining and growing the right people improve exponentially with clarity around role definition, job match and cultural expectations.

How does a leader deal with underperforming or culturally incompatible employees? Many advisory firms contain team members who manage a large number of clients, are brilliant technically or bring in a lot of business — but also are disruptive jerks. Partners must decide whether to endure this behavior or terminate the individual because of his or her impact on others. In my opinion, business owners should lead by example in holding people accountable and terminating those who violate firm principles if they refuse to change.

Advisory firms often fail to make these changes because they lack a process for evaluating performance and discussing expectations. Employees keenly observe what the business leaders do. If you wish to create a successful work environment, it is as important to eliminate the distracting bad behavior of co-workers as it is to provide the latest technology, fair rewards for their labor and opportunities for promotion. Young people today have a choice, and they exercise that choice by seeking out companies that align with their values.

— Read “Top 10 Best Jobs of the Future: 2015” on ThinkAdvisor.