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Practice Management > Building Your Business > Recruiting

Explosion of Firm Models Poses a Human Capital Challenge

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What You Need to Know

  • One way to attract and retain advisors is by providing career paths — clear sequences of steps to achieve their goals.
  • It's wise to make sure that your firm’s model matches the candidate’s career goals, thus preventing turnover.
  • Firms must know what type of firm they are building to garner the best talent for them.

The success of financial advice firms hinges on their ability to attract and retain advisors. One way organizations can accomplish this is by providing career paths — clear sequences of steps by which employees may advance toward their professional goals.

But here’s the tricky thing: As the industry evolves, firm models are proliferating. And that adds another dimension to the hiring process — namely, making sure that your firm’s model matches the candidate’s career goals. If your firm type and the candidate’s goals are not aligned, you’re more likely to eventually lose the advisor and hire and train a replacement, which is expensive.

Not long ago, advisory firm models were limited to investment-only firms, wealth management firms and financial planning firms. That has expanded to include fintech financial planning firms and financial therapy firms. Each type of firm has a different service model, different target markets, different pricing structures and many other points of differentiation. Let’s look at the different firm types:

Fintech financial planning firms: I believe that this model is poised to proliferate strongly. Fintech firms are independent RIAs built around proprietary financial planning software. These fintechs are not to be confused with robo-advisors or the fintech tools that are sold to advisors. They are businesses that developed their own comprehensive financial planning software before hiring advisors and accepting clients. The software serves as the backbone of the client service experience. 

We are already seeing market leaders emerge in the fintech financial planning lexicon. The vast majority of independent advisory firms that are starting from scratch today are fintech firms, and I believe that we will see such firms continue to enter the marketplace at a rapid pace over the next five years.

Investment management firms: Two decades ago, the conventional wisdom in the independent advisory firm world was that pure investment management models were not feasible. Without financial planning, firms could not adequately retain clients. For this reason, investment-centric businesses adopted financial planning services as a loss leader. They would offer free planning in order to manage the clients’ assets for a fee. 

But the belief that investment accounts can’t be retained without financial planning is fading. It turns out that a significant subset of consumers understand that financial planning is important, but view investment management as their immediate concern. I’ve seen ample evidence that pure investment management firms can be successful and quite profitable if they  tap into the right client base.

Wealth management firms: Wealth management firms provide investment management and financial planning, and they are generally known for complex client experiences. Over the past two decades, wealth management firms have expanded their service models to include tax planning, tax returns and retirement plan services. The industry sees wealth management firms as providing a broad cross section of financial services under one roof. 

Competition among wealth management firms is high, and clear market leaders are emerging. These dynamics are positive, and there’s still space for many new wealth management firms. But as the space evolves, we will see leading firms continue to consolidate their positions, while many smaller firms focus on offering much more comprehensive, personalized wealth management experiences for key client niches. 

Financial planning firms: One of the most interesting models to develop in recent years has been planning-only firms. These businesses generally do only financial planning, usually for a retainer fee, and do not usually manage assets. It’s noteworthy that planning-only firms have proliferated in tandem with investment-only firms. 

One selling point of wealth management firms is that they eliminate the need for the client to shop around for multiple financial services providers. But the growth of financial planning firms and investment-only firms suggests that a substantial number of households are willing to do the legwork of coordinating services for themselves.

Financial therapy firms: Financial therapy is a relatively new field, in which advisors help clients to understand and transform their beliefs and “scripts” around money. The goal is to support those clients in moving from a scarcity mentality to an abundance mentality so that they may make better financial decisions for themselves and for their families. Financial therapy firms generally focus on the middle market, combining financial planning services and emotional therapy, and charge an hourly rate for their services. 

The fact that each of these models has taken root in the marketplace of advice means that advisors now have more potential career tracks, and more opportunities to specialize when it comes to giving advice. The key for advisors and firms alike is to align the advisor with the business model.

Is the candidate predisposed toward a more therapeutic type of client relationship? Another might have a more natural affinity for a technology-driven client relationship serving the mass-affluent. One candidate might be best suited to the comprehensive work of a wealth management firm, while another prefers to focus solely on tax planning or retirement-centric consumers.

There is ample room for career growth in each of the five service models described above. But there is also more opportunity than ever for advisors to leave one firm for another that might be a better fit for their talents, personality, career goals, and clients they want to serve. Thus, it’s important for firm leaders to clearly understand their business model, and to hire advisors who are a natural fit. 

Bear in mind that we remain in a period of soul-searching among employees who arose during the depths of the pandemic and “the Great Resignation.” Many advisors continue to reevaluate whether they’re in the right role and whether they’re truly professionally satisfied. They are well aware that they have more choices of firm models; in some cases, they’re contemplating building their own businesses around their strengths and interests. 

Retention is tied to an advisory firm’s culture and service model. If the fit isn’t right, then increasing salaries or bestowing new titles and responsibilities won’t create sustainable satisfaction. And bending your vision of the firm, even if it’s to accommodate a valued advisor, is likely to undermine the growth of the business over the long term. 

For now, “general financial advisor” is still a viable career track. But as upstart models become even more fully developed, specialization among advisors will become the norm. Firms won’t be able to simply hire advisors and plug them into their businesses as though the profession were homogenous. They will have to engage with candidates with the aim of understanding which services they truly want to provide.

Hiring an advisor without regard to whether they’re a good match for your model may work out in the short term. But ultimately, if firms are unable to accommodate advisors’ preferred type of work, they’ll have a hard time with retention. And that means they’ll have a hard time with growth.

How do advisory firms overcome these changes in the career and hiring landscapes? In today’s environment of rapidly evolving financial service business models, firms must know what type of firm they are really building to garner the best talent.


Angie Herbers is founder and chief executive of Herbers & Co. She brings two decades of experience to consulting, researching and training financial advisory firms to long-term, scalable growth.