As advisory firms grow, they are more likely to tap full-time, dedicated managers-people whose primary job it is to run the business rather than just serve clients or find new ones. This is a trend we've seen consistently in past research, and one we found again in the 2008 Moss Adams Financial Performance Study of Advisory Firms (sponsored by Genworth Financial Wealth Management). 

As advisory firms have grown over the last several years, dedicated management positions have emerged. They have long been the staple in most other industries, but they are relatively new to financial advisory firms, whose business models are still evolving. In 2007, 59% of multiprofessional ensemble firms with $2 million to $5 million of revenue (which are known as "mature ensembles") had at least one dedicated manager on staff, as did 89% of ensembles with more than $5 million of revenue (which are known as "market dominators"). As you would expect, solo firms, regardless of their tenure, were much less likely to have a dedicated manager (only 15%), but even 26% of ensemble firms with less than $2 million of revenue (early ensembles) had such a position in place. An additional 6% of firms expected to add a dedicated manager in 2008.  (See Figure 1.)

A dedicated management role would be fulfilled by a president, CEO, managing partner, chief operating officer, chief investment officer or human resources director. In each case, his or her primary function would be to manage the business rather than develop client relationships or cater to existing customers. As firms grow, management is less likely to be a part-time job of the founders, owners or advisors, but the dedicated function of an individual hired for, or moved exclusively into, a management role. And in all cases-to meet the criteria of "dedicated manager"-this would be an executive level position with decision-making authority, not an office manager-level position.

Since moving into a CEO role myself in July, I have had countless requests to describe what this role means, what it does and how it functions within a wealth management environment. There are several ways to structure such a position, so instead of giving a one-size-fits-all answer, I will offer some specifics and outline the process we recommend that advisory firms go through in contemplating such a position.

When Are You Ready?
There are three things you want to ask if you are ready to hire a dedicated manager:
How complex is the business?
How much control are you willing to give up?
When does a new hire become the best financial decision?

If the organization is new or small, and thus less complex, it's likely that the business owner or partners can handle the management responsibilities. It's not unusual to see owners who are client-facing advisors but who also spend part of their time managing the business. In firms with multiple partners who are advisors, maybe one is responsible for technology, one for HR, one for marketing.

It's only when those organizations start to get larger or make plans to grow-and thus when each of these functions becomes more complex-that a part-time person is no longer enough, especially a person whose "real job" is something else entirely. If someone splits his or her time between working with clients and running the business, running the business will always come second. That's probably appropriate, but can be a difficult way to manage and grow an increasingly complicated operation. So it's usually complexity that first drives an organization to consider adding a dedicated manager.

The second question is whether you are willing to give up enough authority to the executives for them to be successful in your organization. Most firms go to the financial question before the control question and discover, "Yes, we can afford to make this addition." But they forget to go back and ask the question, "Will we actually allow this person to take on real responsibility and authority to make our investment worthwhile?" The person must truly free you to reallocate your time elsewhere-to client service, business development, portfolio management or whatever else.

If the answer is "no," you may not want a dedicated manager. You may in fact just want someone to do stuff related to managing the business while you keep all the control and decision-making authority for yourself, and if that's the case, it's better to hire a strong office manager or a really strong executive assistant. If the answer is "yes," however, then you do in fact want someone to run the business side of the business and you can deal with the implications that has for your control. That's when you've passed step two.

The third hurdle is the financial one. There aren't many people who wouldn't say "Yes, please," when asked if they'd like someone to take over their management responsibilities. But in actuality, the breaking point for many organizations is the financial one. We continue to find that the $2 million revenue level seems to be the point at which an organization is both complex enough to warrant a full-time manager and large enough to be able to afford one. I have also worked with advisory firms that swear they never would have made it from $1.5 million to $2.0 million without a dedicated manager.

So the question is: When are you large enough or growing quickly enough that you can justify the addition? The analysis is pretty straightforward. How much time would you realistically free up to focus on revenue-generating work if you hired someone? Counter that with how much revenue you would need to break even after filling the manager position and paying his or her salary. See Figure 2 for an example of a breakeven calculation for a new manager if you are operating at a 60% gross profit margin.

What Do You Need?
Next you must think of what kind of manager you need. Is it a CEO or a COO or something else? You must make this decision taking into account the level of authority you want the person to have. For instance, maybe the founder also wants the CEO title, and therefore hires or appoints a COO, even if this person is largely taking on CEO responsibilities. CEO and COO are the most common executive level positions we see firms add, and I have seen organizations mix responsibilities for both titles. But of course they are not interchangeable titles; they are two very different jobs.

The simplest thing is to consider the CEO role strategic and outward facing, while the COO faces inward, focusing on operations. For some very broad brush categories of responsibility, see Figure 3.

After asking themselves the questions about control, complexity and financial constraints and asking themselves about what they really need from a manager, business owners more frequently add COOs before CEOs, we have noticed, since the COO's responsibilities are usually the first ones the organization feels the need to reallocate.
That means it's important for the owners or partners to write a description of the job they wants to fill before they have the candidate in front of them. An owner must outline the skills, experience, credentials, abilities and personality that will be required for a candidate to be successful in the role. As a business owner, you can't skimp on the time required to do this well. It's the most important part in the process.

The two primary options for finding a dedicated manager are either to hire someone from outside or to designate someone already inside the firm. I have seen both approaches work very well. Sometimes an organization is so unique that its principals can't imagine an outsider being able to integrate and make an impact. In other organizations, the owners recognize that they must designate one of their own, because they would likely not really delegate true authority to an outsider. So most organizations face the question: "Do we take an in-house advisor out of his client-facing role (which, of course, he is usually very good at) and designate him the dedicated manager? Or do we hire someone from the outside?" Like I said, there is no right answer here, but remember:

The great advisors or other professionals in your firm may or may not have the skills to manage/run/lead an organization. If they do, and if you can live without them in their previous role, then choosing them is probably your best option simply because the cultural fit will be good and the ramp-up will be shorter.
This position will only be as successful as the authority you give it, so if you really don't believe you would ever have faith in an outsider to do the job, don't waste your money or their time.
If you grant them authority and have the patience to help them ramp up, outsiders can bring a higher level of management skill than most organizations will find internally-as well as bring their outside experience.

If you decide to "hire" internally, make sure you hold the candidate up against the job description and profile you created. Make sure you are not creating the job around the person but instead designating someone who is a good fit for this job. If there is no such candidate, look outside.
If you decide to hire externally:

Check out industry job boards (, etc.);
Network with local professionals that might know good candidates;
Consider a professional recruiter-they are expensive, but usually worth it for this level of position. Make sure they know your business. (If you are a wealth manager, for example, don't hire a wirehouse recruiter.) If you need a referral, drop me a line and I can make an introduction.

How Do You Compensate?
If yours is a firm with 10 to 75 employees, you can usually expect to pay a CEO or COO total compensation (base plus cash incentive comp) in the range of $150,000 to $500,000. It's also not unusual for such a person to receive equity or long-term compensation if he or she is performing well and contributing to the long-term growth and value of the company. We see the range of compensation go significantly higher for a CEO who is a partner in the business, particularly if he moved into the CEO role from a rainmaker or advisor position. But if we look solely at the job compensation, the range mentioned is consistent with what we see. (Check out the 2007 Moss Adams Compensation & Staffing Study- more data.)

Make sure you have an incentive compensation plan in place that rewards dedicated managers when they reach performance targets both for themselves and for the entire organization. About 20% should come from their hitting individual targets while 80% should come from organizational targets. (A 25%/75% split is also appropriate.) This kind of compensation really allows you to share the risk and reward.

What's Ahead
We all recognize that the industry we are in is becoming more and more complex. Those of us in growing organizations recognize that when we specialize, our talents can be put to their best use and we are free to focus on our unique passions. Those firms that have done the proper planning before they add dedicated managers to an evolving business will be rewarded with significant increases in growth, productivity, profitability and happiness.