Ask a roomful of financial planners to name the biggest challenge facing our industry over the next decade. The answers would be varied and include items like "margin compression," "regulatory pressures," "clients' confidence in financial markets" and other real issues. But considering the following data, it is reasonable to conclude there is an even bigger challenge:
The average age of advisors is variously pegged between 50 and 55, depending on whom you ask. These advisors will surely begin to join their baby boomer clients in looking for an exit from the formal workforce within the next five to ten years.1
There are 70 million baby boomers retiring over the next 20 years with 401(k)s, pension rollovers, lengthening life expectancy and a real need for professional financial advice.
The average advisory firm surveyed by Moss Adams increased its number of staff by 100% between 2001 and 2006.2
In aggregate, these facts indicate there are more clients coming our way, that many of the existing practitioners are likely to exit the business and that we require more and more staff to serve our clients. A reasonable case can be made that the greatest challenge facing our profession will be to attract, develop and retain qualified staff.
Moss Adams puts it in stark terms: "Today, advisory firms are competing for talent even more than they are competing for clients,"3 and "The competition for new talent is intense and has led to a shortage of people and steeply growing compensation. The creation of a career path inside your firm and structured incentive programs is therefore of high priority."4 The firms that succeed and sustain growth will have a well-executed process to raise the numbers and quality of their staff. The process begins with the principals of the firm creating a track for growth and development within the practice. A well-defined career path can help:
Attract new talent by providing a clear vision of employees' prospective future with your firm;
Offer meaningful mentorship to employees to help them develop; and
Help you retain high-quality personnel by giving them the opportunity to earn a substantial income and the possibility of ownership in the business.
A sample career path should involve a list of successive positions a prospective employee would fill that ultimately lead to her becoming a lead advisor responsible for providing advice to clients. In an effort to help employees understand the pros and cons of different stages on the path, I have found it useful to plot the various positions' potential risks and rewards. (Please see Figure 1.) The clearer we can make the choices, the more likely we are to attract and hang on to good people.
Imagine having a chart like this to share with a graduate from the financial planning department at your state university. The conversation you have with this prospective hire is a stark contrast with the interviews he or she would have with the old-school recruiters. Most of our industry is still hiring into a model that puts new planners through a ringer involving a lot of (cold) phone calls, without much training and with inconsistent pay based on commissioned sales. But it is no longer necessary, or even appropriate, for cold calling to be the only doorway into our industry. Can you imagine receiving a phone call at dinnertime from a newly minted juris doctor offering you a free legal checkup? Or imagine the latest graduate from medical school putting on chicken dinner seminars about the features and benefits of electrocardiograms?
By contrast, the professional career path within a mature financial planning practice looks less like selling encyclopedias and more like the track from junior associate to partner at a law firm.
As you can see from the chart, the path begins with unlicensed administrative help. Putting a college student or recent graduate in this role can allow you to learn about his work habits and personality while he studies for his licensing tests. At the same time, the new hire is learning the basic nuts and bolts about your business-how to greet clients, what your marketing process is, what your compliance procedures are and what your broker-dealer or custodian relationship is like. This is a low-risk, low-investment way for you to decide if you have a good candidate for advancement.
Once an employee passes the necessary licensing tests, he or she can begin to serve in your back office. At this point you can have him do appointment prep and follow-up, conduct trades, answer service calls from clients and really start to learn about the details of the financial planning business. The career path design that you create should have some target skills to acquire with a certain amount of time. For example, you might lay out the tasks performed by a paraplanner, which you expect the employee to master within 12 months. I expect employees in my office to continue in the paraplanner role for 12 to 18 months, and review their progress twice a year.
It should be made clear that not all employees will go full cycle. In other words, there will be some people who are excellent paraplanners and may run your office like a top, but aren't comfortable or confident enough to be a lead advisor. The principals of the firm must be able to accept and honor the various skills and talents of their staff. A business attracting gifted advisors will have plenty of room for gifted support staff.
Once the paraplanner role has been mastered, the staffer can begin to sit in on advisor meetings with clients. In my firm, we call the person serving in this capacity the "associate financial advisor." This method allows us to serve several objectives:
The staffer can complete the summary letter, meeting notes and trades for the client right in the meeting, reducing the amount of time needed for back-office follow up, and reducing the advisor's need to touch the case again.
Clients gain familiarity and comfort with the associate.
Most important, this is where real mentoring occurs.
Many of your competitors offer training programs that put a new advisor in a top producer's office for a day or two very early in their tenure and offer sales training. Most real financial planning training occurs on the job by trial and error, perhaps at clients' expense. Contrast that with the experience associates on a career path. They have already worked as administrative assistants for six months while passing their exams. Then they learned all about the back office and prepped your appointments for 18 months. Now they will sit in your meetings with you learn-ing exactly how an experienced professional interacts with clients, delivers advice and responds to questions. If they sit with you for 12 to 18 months, how many meetings will they observe? At the very least they will watch you conduct several hundred. After each meeting you can conduct a short debrief to point out why you did what you did and make sure they understand.
As the associates' competency grows, you can let them offer primary service to some of the firm's C-level clients. In addition, the associate learns to develop new business and implement marketing. The employee can continue in the associate financial advisor role for a number of years before becoming a servicing advisor for some of the firm's more valuable clients.
As they become accomplished at providing financial advice, associate financial advisors support senior advisors less and begin acquiring and serving clients on their own. We then refer to them as being servicing or lead advisors, depending on their skill and tenure. Servicing and lead advisors earn a base income plus incentive compensation tired to specific targets they set with the firm's principals. Once a lead advisor has been in the role for two to four years, he or she may be offered a chance to earn shares in the firm. While most advisors will choose to accept this opportunity, some may not. Lead advisors earn a base salary and bonuses based on their performance, regardless of the firm's profitability. Owners earn a wage for their work and a share of profit proportional to their ownership interest. There may be cases where cash compensation is lower for a principal than for a lead advisor. However, as the firm's value grows, the owners' net worth will likely be higher than the non-owner advisors.
The recent Moss Adams survey once again confirms the importance of designing a thoughtful and enticing career path for our employees: "For firms to continue to grow, they will need a value proposition to attract, retain and, most important, develop personnel whose expertise and efforts they can leverage. This value proposition should be as compelling as the one they have for attracting and retaining clients."5 The career path outlined here can be adapted to your personality and circumstances and help you craft an appealing offer for top talent. Best wishes as you turn our profession's greatest challenge into a serious competitive advantage.
John Knowlton, CFP, is a senior financial advisor with Ameriprise Financial in Portage, Mich.
1See "No Takers," by Len Reinhart, Financial Planning, October 2007, p. 49.
2Moss Adams 2007 Compensation and Staffing Study of Advisory Firms, p. V.
3Moss Adams 2007 Compensation and Staffing Study of Advisory Firms, p. 1.
4Moss Adams 2007 Compensation and Staffing Study of Advisory Firms, p. 38.
5Moss Adams 2007 Compensation and Staffing Study of Advisory Firms, p. V.