With the booming growth of the independent advisory industry in recent years, new trends in human capital management in larger firms are emerging.
While business growth is usually a good thing, it also can present challenges for owners dealing with challenging issues. One such issue is position of associate advisors within advisory firms.
Thanks to the industry’s growth, recruiting advisors has become a significant hurdle. Our industry schools and programs aren’t turning out enough well-trained young advisors to keep pace with demand. Plus, due to this demand, the cost of hiring one of these young people has become ridiculously high.
To get the talent they need to keep pace with business growth, many firm owners have created the position of associate advisor. These positions seem to be filled by those who generally are young and have little to no advisory training or experience.
The thinking behind these positions seems to be that while keeping overhead down, associate advisors can assume some work done by a firm’s senior advisors, enabling the latter group to spend time working with more clients. The reality rarely lives up to these expectations.
Typically, there are two types of associate advisors in the industry. The first type does behind-the-scenes work: compiling plan data, making trades, handling issues with the broker-dealer or custodian, etc.
But these staff members tend not to have much training or experience with clients and consequently spend little time speaking with clients or making recommendations, except occasionally in client meetings with senior advisors. (Think paraplanners).
The compensation for associates with little to no experience is typically between $55,000 and $60,000 per year.
The second level of associate advisor is client facing. These staff members give advice to clients with lower-level needs and straight-forward financial situations: taking calls, making budgeting recommendations, dealing with insurance issues, etc.
Since they are client facing, these associates’ comp is rising quickly — to $65,000 to $70,000.
These associates are key to the growth of most advisory firms, since you need more people who can give advice directly to clients to expand your business. This means that a firm’s senior advisors need to spend a significant portion of their time working with younger advisors and bringing them into client meetings.
The top level of associate advisors are those who have their CFPs and were typically finished a college-level financial planning program. Even without much experience, these CFPs often educate their managers about current trends and industry regulation.
What to Do?
As you can imagine, there is a shortage of these CFP-educated advisors. With high demand for them at larger firms, their starting compensation has been pushed into the $80,000-per-year range.
But a word of caution to firms that would hire these top-tier associates: They expect to be working directly with clients pretty quickly after joining a firm. If you don’t get them on that track and facing clients fast, you can lose them.
Before you hire any new associate advisors, you should have a clear vision of what you want: Do you want support or someone who can work directly with clients and grow your firm?
That last point is the key to your business success. To make your firm into a real business, you have to let other people give advice and work with their own stable of clients.
The associate advisors you hire today will be the pipeline to your future growth. Be sure you understand the different types of associates and their educational pathways. Then hire the associate who can and will help you build the business you want.