It Takes Two To Tango
This month's cover story by Eva Marer shines a spotlight on what may be the Achilles heel of this profession. The demand for advice is booming, but all over the business you hear the same refrain. "The only thing holding my firm back is a shortage of skilled professionals who are available to work for us," many an advisor says.
With interest in financial planning at the nation's universities rising, the supply of quality entrants to the profession should start to flow. But it requires a long lead time. Most advisors say it takes three years to bring young CFP candidates up to the speed where they have the ability to give a firm the capacity to handle new clients.
As our columnist Rebecca Pomering of Moss Adams wrote in our May issue, established professionals in this business have been criticized rightly for failing to create career paths for young people entering the business. But the problems aren't totally one-sided.
The expectations, measured in terms of salary and equity, of young employees is increasing. Up to a point, that's fair. One advisor in a western state told about her discussions with a talented young advisor who wanted 9% of the firm upon coming on board. She suggested he spend a year working at the firm to see if the fit was right-a reasonable request-but he wasn't interested.
It takes two to tango. Advisors are as guilty of retaining complete control as young entrants to the business are of excessive expectations. What we have here is a market that's very much like the one for advisory firms. It's not clearing.
At many firms, employees have made significant contributions to the growth and development of the business that need to be recognized with something more than an employee of the month visor. Whether it's equity, phantom equity (appreciation rights) or a serious bonus plan, it needs to be meaningful. Or you can wait until they walk out the door.
At the same time, young professionals looking to
link up with a more mature firm shouldn't expect significant amounts of
real equity, the way a professional athlete fresh out of college gets a
signing bonus. If they bring clients, and assets, with them, that's a
separate conversation.
But their compensation should quickly start to
reflect their economic contribution, and it should not be minimized. At
that point, a plan to buy into the firm should be on the table.
Staffers should be reminded that in Silicon Valley, the shared
ownership/stock options heartland, interest in options has been
dramatically muted. Equity doesn't translate into a one-way ticket to
wealth.
If both parties work in good faith, the pie can be enlarged to the point where the owner/founder won't worry about dilution and the employee/prospective partner will find the option of remaining at the firm as viable. I don't pretend to be an expert on this subject. People like Rebecca Pomering and Mark Tibergien are far more capable of drawing up these plans.
But it's obvious that in almost any service business your key assets are people, and if employees are treated as little more than overhead, the firm's ultimate value will reflect this philosophy. In this day and age, when human capital is often the most precious kind of capital, most successful businesses understand the importance of enlightened self-interest.
