Over the past month, I have been referring to COVID-19 as the “wise virus” within our consulting culture. I started calling it that because it has reminded so many of us about the importance of people in our lives.
As we wait for what unfolds over the coming months and year, advisors need to take steps today to lessen the impact of this crisis on the future of their businesses. But first, it’s important to address the topic of people, that is, you and your employees.
A wise mentor once told me, “The faster you accept challenging things, the sooner you move on.” Over the past two months or so, many owners, industry publications and consultants have been focusing on the numbers of financial advisory firms — falling revenues, lower profits, tighter cash flows. In doing so, they miss the bigger, much more serious, picture.
The major risk to financial advisory firms is not the financial markets, but rather is: What happens if some or all your advisors get sick? What happens if your support staff gets sick? What if you get sick? What happens if your firm becomes incapable of serving its clients?
In a service-based business, if there is no one to serve the clients, the long-term effect will be much more catastrophic than a period of reduced revenues and profits, which will eventually recover. A business can financially survive a bad quarter, especially when it has recurring revenue.
However, a service-based business cannot survive losing the employees who serve its clients. In a crisis such as today’s, firm owners must accept where they need to put their financial focus in order to keep the business functioning. And that focus must stay on staff.
In a traditional market downturn with falling revenues, firms may consider layoffs. However, with the crisis we face now, getting rid of your people is the last thing you should consider.
If your people are made to feel expendable during times when they also fear for their health, it’s guaranteed that you will lose respect as a leader. And those who don’t get laid off surely will be looking for new opportunities when the crisis is over. For these firms, this means that as one crisis ends, another will begin.
Consequently, cutting people in this crisis is risky. Here are three steps you can take instead:
Be vulnerable and compassionate
As this crisis has left us sheltering at home, it gives people time to think. Some may start to think about their jobs, careers, lives, businesses and what they want to do after the crisis ends.
Times of crisis nearly always come with time to reflect. As a leader, you are likely reflecting, too. I encourage you to let your team know what you are contemplating. By doing so, people will start opening up to you. They will start to relate and connect to you more. They will start to comfort you, as well. They might even tell you they want a different career.
We helped a firm work through the Colorado wildfires. It was the firm’s leader who showed his sorrow for what was left and opened up to his team. I will never forget how the employees all asked to take pay cuts so they could keep the team intact.
Ask what’s important
What do your people need to do their jobs better and differently in this environment? What could you afford to cut, outside of people? Now is the best time to invest in your culture, working with your team to develop more meaningful core values, a stronger mission, more flexible routines and working hours, and smoother operational processes.
This crisis likely will result in a major culture shift for all businesses. Whether you like it or not, you now are running a remote business that very well may be the future. What are the tools, materials, technology resources, etc., you are not using that you can cut? During good times, operational processes and procedures can get complicated and sloppy. What can be improved and/or replaced to better support your people and also reduce costs?
Get more efficient with your team. Working together on operational activities brings team members together and promotes unity during a time when focusing on improvement is about your only strategic option. If you work together today to improve operations, you will save yourself a lot of money in the future.
Compensation planning, not plans
There is a big difference between a plan and planning. During a crisis, your compensation plans often get outdated and can be nearly useless if it’s difficult to make layoffs at a time of falling revenues.
Unfortunately, many of the best-laid continuity plans today never address compensation planning. I learned years ago that compensation planning is a critical element of any continuity planning process and needs to be addressed.
In a professional services business, where the chance of rapidly falling revenues in a crisis may result in losing people or making layoffs, you need to have the flexibility to make changes to compensation plans in real time.
Once you understand how your compensation structures should change when you enact them in a crisis, outline them with each employee, so they understand the ramifications to their compensation when the continuity plan is deployed.
This way, when you run a test of a continuity plan, employees already know what’s going to happen. There shouldn’t be any surprises. Nor will employees be shocked when you implement the plan in a crisis.
If your current continuity plan doesn’t outline changes in compensation structures in a crisis, our first recommendation is that — before you start writing strategic plans or double down on marketing — you look at your compensation structures and redesign them, starting with you and your partners.
As we’ve learned by taking many firms through crisis situations, those with continuity plans which thoroughly address compensation planning are far less likely to have to go through layoffs. Good compensation planning, outlined in your continuity plans, can preserve your people in a crisis — ensuring that you maintain your culture and continuing to deliver a high level of service to your clients.
With that in mind, remember that your people are the last place you should go to for cost cutting. Hopefully, this “wise virus” will lead you to take a more diligent approach and ensure you have compensation planning included in your continuity plan.
Angie Herbers is an independent consultant to the advisory industry. She can be reached at [email protected].