In his January 2015 Investment Advisor column, Stop Blaming Millennials for Bad Management, Mark Tibergien makes this observation: “I am beginning to think that the financial advisory business is suffering not from a talent shortage, but from a management shortage.”
The Pershing Advisor Solutions CEO goes on to explain: “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’.”
Mark is referring of course to the situation that has existed since the beginning of the independent advisory industry. The vast majority of owner-advisors are well-trained in personal finance, but have very little training or experience in business management. But with that said, we believe that this “management problem” also has been magnified in recent years by the sky-rocketing growth of many firms: and the changing roles of owner-advisors that this growth has created.
Almost all of today’s owner-advisors began their careers as advisors: working directly with clients, doing most of the “rainmaking,” and generating a large portion—if not all— of their firm’s revenues. It was an attractive position being “The Man” or “The Woman,” with virtually everyone else in the firm as their supporting cast: and many consider(ed) it “living the dream.”
But as their firms have grown, many of these owners find themselves cast in a new role: that of CEO, with responsibility to run the firm and manage the revenue generators, rather than actually generating the revenues themselves. And while most firm owners find it nice to have a larger firm and make more money (in many cases, a lot more money), we find that many of these owners are also somewhat uncomfortable with their new role. They have a hard time making the transition from the lead revenue generator to being the leader of the biggest cost center.
The question these owners are wrestling with—whether they know it or not—is how to continue adding value to their firm. Or rather, adding enough value to justify their significantly increased compensation.
Of course, some never figure it out, but we find that sooner or later, the successful owners realize that instead of being “The Man,” their new job is to support the “Men” and “Women” who are now generating the firm’s revenues.
Put another way, these owners come to realize that their continued success, and that of their businesses, now depends upon their employees—and that their job is to increase their employees’ success.
This support can take many forms, depending on the circumstances and the people involved. At a minimum, it involves allowing employees to do their jobs their way, and providing the tools and training to succeed. You also need to provide a clear vision of what the firm is and where it’s going and compensation that allows employees to directly participate in the firm’s success. That yields a sense of teamwork and purpose—that we’re all in this together—and that what they’re doing matters to the firm and its clients.