Many words have been written about the acute talent shortage in the financial-services industry for years. Yet, a 2016 study sponsored by BNY Mellon’s Pershing found that for the first time, the number of employee advisors exceeded the number of owners in RIA firms. Further, the universities that confer financial planning degrees are graduating and placing more students each year.

What does this mean for your firm? The good news is that young people desire a career that provides intellectual stimulation, good pay and the opportunity to make a positive impact on the lives of others. It also means that growth-oriented advisory firms need to create a dynamic work experience to attract and retain talented newcomers.

Many firm owners are entrepreneurs who base their recruitment strategy on the “eat what you kill” mentality they experienced as young financial professionals. They tend to lead with compensation as a means to recruit and keep staff. This approach no longer works.

In reality, compensation is a hygiene factor rather than a motivation factor, meaning that pay must fall within the realm of fairness in order to draw talent to your firm. The reward system by itself is never enough, however. Advisory firms should be thinking about how to provide challenging work and a career path for employees rather than relying on compensation as their only tool.

Advisors who use compensation as a substitute for developing talent are often surprised when key employees choose to leave them or when performance begins to lag. Firm leaders often complain, “Young employees aren’t motivated to bring in new business,” so they concoct incentive plans in hopes of driving behavior. Then they are surprised again when these same employees fail to become great business developers.

On the other hand, advisory firms that invest in training and development demonstrate a strong and valuable commitment to employees. Employees understand their own role in growing the business and see a clear path towards becoming partners in the firm.

The career path begins long before partnership, however. In the best advisory firms, it takes between eight and 12 years to fully prepare a partner. Creating a partner track means defining the steps along the way and implementing a process of training and evaluation.

A Powerful Pyramid

While each firm is different, I generally recommend that advisory firms outline a five-rung career ladder or a five-step career pyramid. Firms can use their own terms, but it would be terrific if the profession could adopt uniform definitions of each position. For the sake of example, I propose using five job titles to describe the career progression: analyst, senior analyst, service advisor, senior advisor and partner or principal.

Career PyramidThis career pyramid illustrates how an individual can join at an entry level — analyst, in this example — and progress through the layers to become a partner in the firm. It may take several years in a role before an individual moves to the next level. In fact, two years is a reasonable frame of reference for each stage in the career progression, though high performers sometimes progress more quickly.

An effective career pyramid defines the responsibilities and expectations at each level, including a description of “excellence” for each position. Many firms tend to outline job duties alone, but qualifying language helps managers understand what they are supposed to be teaching the individuals. The specific language also provides a framework for employees to monitor their own progression.

For example, the primary responsibility of an analyst is to master the basic firm functions. This means learning how to create financial plans, understanding investment and tax basics and achieving proficiency in the tools used to serve clients. Much of this training occurs while working on client engagements. Excellence in this position is easy to quantify through testing and evaluation.

At the next level, a senior analyst is responsible for supervising new analysts and directly supporting different teams. Some refer to these individuals as “support advisors” because they perform much of the detail work on behalf of the client. Excellence might be measured in terms of responsiveness, low error rates, productivity and turnaround time.

A service advisor functions like a relationship manager in most firms. They do not have a high expectation of developing business, though part of their career progression requires earning advanced credentials, gaining experience and establishing an industry and community profile.

At least 75% of their time is spent working with clients and the balance spent developing the skills needed to move to the next level. This level represents an important transition from being a “doer” to being a “leader.” Their development focuses on preparation for a promotion to senior advisor, as well as mastering their current job.

A senior advisor is a true leader in the firm with responsibility for managing a team. These individuals are expected to develop new business for the firm. Growth in this area requires more formal training, often provided by outside coaches and consultants, as well as direct mentoring from at least one of the partners.

Current partners groom senior advisors to be their successors. They coach and evaluate them on key functions including leadership, management, people development, business development, relationship management and culture.

When a senior advisor achieves “excellence,” he or she may be considered for partnership in the firm. As at any high-performing professional services firm, partner candidates are evaluated by other members of the partnership before being invited to join the club. Their designated mentor should be eliciting feedback, and providing coaching, well before the time comes to nominate a senior advisor to become an owner in the business.

A Path to Progress

Oftentimes advisory firms recruit individuals in the middle of the firm’s career pyramid rather than starting at analyst. In these circumstances, leaders must place recruits in their proper position with the same expectations and comparable compensation in order to maintain the integrity of their people development plan.

Demonstrating progress within each step helps individuals feel like they are moving closer to their goal. For example, if a service advisor masters a couple of important elements of their job, he or she might move to the middle of the level in terms of compensation. Small incremental steps give both managers and employees confidence that they are achieving success.

Most firm leaders entered this business with a dream — to help individuals achieve financial independence. For most, this dream did not include the challenges of managing and developing people. As the profession shifts from practice to business, a structure and process for attracting and retaining talented people has become absolutely essential to building an enduring advisory firm.