Among the most complicated aspects of an enduring business is people; specifically, recruitment, retention and development of talent. Yet this area seems to get short shrift in most advisory firms.
Witness the shocking demographics within the profession. Our average professional is in his or her mid-50s. More Certified Financial Planners (CFP) are over the age of 70 than under the age of 30. Fewer than 25% of the advisory population is made up of women and only 8% are people of color. Think about these figures compared to the demographics of the general population.
However, the most obvious clue to our profession’s challenge is that the average advisory firm has seen a material slowing of their growth rate to under 8%, while the equity markets have continued on a raging ride. This disparity indicates that advisory firms lack the capacity to grow. Advisors and advisory teams have a physical limit to the number of client relationships they can manage; after that, they simply cannot take on more business.
We measure capacity in advisory firms by examining trends in several key ratios: revenue/client, revenue/staff, client/staff, client/professional staff, profit/client and profit/staff. These factors are tracked in industry research, most notably the IN Research Financial Performance Studies sponsored by Pershing Advisor Solutions and which InvestmentNews acquired from Moss Adams LLP several years ago.
The data suggests an oversupply of clients and an undersupply of people to provide advice. In simple economic terms, this dynamic typically increases both prices and the cost of labor. Not enough new people are entering the business and many firms resort to recruiting talent away from their competitors or providers. In their desperation, employers do not always make good choices about who they bring into their culture.
What are the keys to recruiting and retaining talent? Why do people leave a firm?
Some employees change jobs because of money, especially if the offer is greater than 10% of their current compensation. However, most people with years left to ply their trade choose to leave because the position lacks something they need to feel fulfilled, they have experienced a bad situation or they are ill suited to the role to begin with.
I have seen many employees and managers come and go over the years. While I’m not indifferent to it, I’m also not surprised when it happens. We all experience different circumstances in our lives that compel us to seek change. Heck, I myself have worked for seven different companies in five different cities over my 45-year working history. In most of those cases, I even changed careers. So it’s hard for me to judge others who choose to move on.
One-off departures are not cause for concern, but persistent turnover should raise a red flag. In this case, firm leaders must determine why people are choosing to leave. Contributing factors range from compensation to leadership and management to work environment to firm culture.