RIA Firms Have a Human Capital Problem: DeVoe
Companies must find the right people and step up their games to hang onto them, David DeVoe says.
Many RIA firms are not doing enough to get the most out of their “most valuable resource” — their advisors and other employees — and not doing enough to keep them with their firms, according to David DeVoe, CEO and founder of DeVoe & Co.
Because of that and other reasons, the industry “is facing a potential crisis here with succession planning,” he said Tuesday during the webinar “RIAs: Unlock the Power of Your People.” There is “quite a bit of room for improvement in this industry,” he said.
The COVID-19 pandemic is also potentially “game-changing” for the industry, he warned, pointing out 80% of deaths from the virus have been people over 65 years old. And about 46% of RIA firm owners are over 65, he noted. For those folks, it is “now a life or death decision to go into the office,” he said.
Therefore, it has become more important than ever for RIA firm owners to put their succession plans in place, he said, urging them: “Please go do it. It’s critical.”
Underscoring just how much of a “significant” part of an advisory firm human capital represents, he said “75% of an expense structure for a typical RIA … is tied up in their human capital expenses.”
So “being a smart business manager,” if you are running an RIA firm, “you need to manage that very effectively [and] optimize that investment as well as the economics side of the equation,” he said.
But in this industry, the importance goes “well beyond economics,” he said, adding: “Your people are ultimately what will make or break your organization.”
Not only is it “critical” to “hire great people, smart people, wonderful people, the people that are focused on taking care of clients and executing with great expertise,” but it is also “critically important to get the most out of your people,” he said.
DeVoe also challenged a common belief, saying: “Maybe your clients should not come first.” He argued that, while prioritizing clients is admirable, “maybe your employees should actually come first” because of how critical they are to an organization.
More Survey Details
DeVoe also pointed to survey results included in his company’s recent report, “It’s Time for a Human Capital Revolution.”
Although the RIA industry is on the cusp of a surge in transition activity, 57% of advisors surveyed said transition to next-generation leadership would be bumpy or worse, with a few acknowledging that there was no qualified candidate within their firm.
The lack of effective compensation plans is emerging as one of the RIA industry’s biggest challenges. Fifty-four percent of advisors surveyed said they did not have a clear, methodical incentive compensation plan.
Although performance management is essential for building a motivated team focused on shared goals, 65% of RIAs surveyed reported they conducted performance reviews only once a year or less, if at all, with 49% doing reviews annually, 10% doing them only sporadically or 6% conducting no formal reviews at all, according to DeVoe & Co.
Reducing Attrition, Boosting Productivity
“Study after study focuses on the potential power of performance reviews,” DeVoe said Tuesday, adding: “Giving your clients effective performance reviews on a regular basis can lower your attrition for your organization 15%,” he said, calling that “huge.”
Regular performance reviews can also help boost staff productivity by 12%-13%, he said — “another 10 clients or so” per advisor.
The survey results also showed that 49% of RIAs had not mapped out career paths for advisors and other employees, which could help them see opportunities to grow within the firm and take tangible action steps to increase their contribution.
Eight percent of respondents acknowledged that zero communication on the topic existed in their firm. However, on a much more positive note, 86% of RIAs said coaching was valuable for their firms and employees.
The survey was conducted between November and January among 118 senior executives, principals or owners of RIA firms ranging in size from $100 million to more than $5 billion in assets under management.
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