Advisors often feel that when they join a firm, there’s an implicit promise that someday they will enjoy the lives the firm’s founders do. Most of the time it’s not something written or even said. It’s just human nature to assume that if you follow in someone’s footsteps you’ll arrive at the same destination. It is also human nature to be angry when you wait in line a long time and find out the last ticket was sold and the show will start without you.

Every firm needs to add, train and motivate successor advisors, but the industry has made slow progress in attracting them, and now it seems to be slipping backwards. The profession’s founders (most of whom started their firms as small practices decades ago) have been struggling with the idea of giving up control, trusting their teams and selling equity.

Now the next generation may be running out of patience. They aren’t going to wait around for years for vague promises of succession, especially in today’s environment. There’s an emerging marketplace for their talent offering them alternatives. They want skin in the game.

That means the competition for advisors is only going to intensify. And standing in the wings are private equity-backed firms ready to go to battle for talent so they can hit lofty growth targets.

What successor advisors want besides better compensation is a larger share of the wealth they’re helping create. Most of these advisors have spent five to 10 years serving clients and growing practices but haven’t yet been given the partnership opportunity and control that reflects their entrepreneurial efforts. When they leave a firm behind, they’re often going in search of a better career path, more of a say at the leadership table, and perhaps a greater sense of fairness.

You have seen the LinkedIn messages: “Congratulate Lora on her new job!” What the message might as well say is, “Ask Lora why she left the firm, where she was supposed to be working for the rest of her career.” Or, “Lora’s firm just lost a future star.”

Vague Compensation
Two decades ago, you could tell someone to wait: that they’d be rewarded eventually if they just put their head down and worked hard. It’s questionable how much that strategy worked then, but it’s certainly not going to work now or in the future. Professionals have seen promises broken too many times and don’t trust easily. If they don’t see a clear opportunity to change their financial position for the better, they are not going to stick around.

Our organization, the G2 Institute, studies compensation for advisors, and for the last five years those in our survey say it’s barely changed, even as many founders have sold their controlling interest to private equity firms for stunning sums. The median salary for lead advisors (not firm owners) grew only 18% over the past five years with an annual compound growth rate of 3.4%. During the same period, Social Security payouts grew by 21%. How happy can next-generation advisors be if they’re doing worse than their grandparents?

According to Adam Smith, when demand is high, and the supply is low prices should be going up. Salaries are the price of talent, and that talent is in short supply (all you have to do is go to a bar near any advisory conference, and you’ll hear how scarce it is). Yet salaries are falling behind inflation (if Social Security cost-of-living adjustments are indication).

It’s possibly because firms have added resources, such as centralized trading or client services, that have increased their productivity, allowing them to do more with less and put less responsibility on the advisors, who don’t need to be as experienced and thus don’t need to be paid as much.

But productivity should be only part of the story. This is still a relationship business, and the people holding on to those relationships should be rewarded for the recurring revenue and client referrals they’re bringing in. That reward has traditionally been equity. But increasingly firms are also using incentive compensation to share revenues and profits. If you want advisors to stay, it’s important that you give them every opportunity to both contribute to your organization and build their own personal wealth.

Take Morton Wealth, where Stacey is a partner. The firm uses a three-prong compensation plan that includes 1) a fair salary, 2) advisors’ participation in firm revenue or profit growth and 3) rewards for advisors’ individual efforts.

The firm also offers advisors separate business development bonuses totaling as much as 50 basis points of first-year revenue for new clients.

Besides giving advisors opportunities to grow their book, you’ll also need to adhere to principles of fairness. In the past, compensation was not a hot topic, likely because the market was perhaps not functioning efficiently. Specifically, not a lot of advisors were changing jobs. This is known as a job market’s “liquidity.”

You can see this phenomenon at work in the fast-moving tech industry: People who stay with the same company for more than five years may see their compensation lag 50% behind that of job switchers. And there’s nothing that gets your employees angry like finding out that the new hire gets $20,000 more per year simply because they haggled with you. (Trust us, they find out. And they get angrier when you try to explain it.)

This means you’ll need to start reviewing your compensation models once or twice a year. If you bring in a new person with responsibilities and experience equivalent to those of people you’ve already got in house, make sure they are paid the same. There is nothing worse for a company’s culture than a rumor mill that suggests you don’t take care of those most loyal to your organization.

People Are Your Greatest Investment
The compensation question gets foggier if a younger advisor hasn’t improved their skills or taken on more responsibility. That’s the owner’s fault, but also the fault of younger advisors who haven’t challenged themselves.

Firms often adopt the culture of a recreational soccer team and focus on comfort rather than development. Instead of helping their employees develop their skills or giving them new jobs, such as leading a client relationship or creating new ones, advisory firms frequently say to their employees: “Do as much as you feel comfortable doing.”

This is a lazy approach that assumes people will just observe and learn, and it makes everyone else resentful if someone isn’t doing enough. If you want a growth plan for younger advisors, you have to actively train them to manage relationships, communicate well, and achieve technical excellence. It’s not enough for them to pass the CFP test. They must know how to talk to clients at different sophistication levels, know how to comfort clients through tragedy and use stories to depict complex concepts (such as why it’s vital to have an estate plan align with a cash-flow plan). As advisory firms grow, specialize and centralize, an advisor’s communication skills are going to matter as much or more than technical skills.

If you don’t train your team and leave them to their own devices, it may come back to bite you in the bum. Have you had a team member come to you after two years frustrated that they aren’t moving fast enough in their career? If so, did you blame them for not “taking initiative” or did you look in the mirror and ask yourself, “Did I train and develop with intention?” Leadership is a two-way street, and if you don’t give time and attention to your people, they’ll dump you.

In some firms it’s even common to hire less ambitious people, the attitude being, “We won’t have to replace them when they get promoted.” This is like drafting the worst quarterback because “they won’t feel bad about being on the bench.” It’s the approach of a recreational team: They might be fun to play for, but every year you lose some of your best players, who go on to more competitive organizations where they can be challenged, develop and win some games.

If you want to keep the best players, you’ll need to invest in their futures through training and development and give them opportunities to grow.

The Promise Of Partnership
Most professional services firms elevate their best performers to partner level, making them co-owners, and that’s a powerful way to keep them. After all, it gives them a chance to benefit from the wealth and income they’ve helped create. When they actually hold capital in the firm, it’s more difficult to leave, even when you don’t consider the restrictive provisions of their partnership agreements.

But turning good employees into co-owners has become more difficult in the last five years or so as so many firms turn their ownership over to institutional investors. Advisors are no longer likely to become the controlling owners in their firms. The institutions are very much aware of this challenge and are working to create synthetic equity. But there is a difference between owning a home and buying shares in a real estate investment company.

The institutional investors might even be treating their advisors well. (No one is spending as much money on training, development, compensation and support for next-gen professionals as some of the big institutional owners.) But the advisors might feel like they’re living in a condo with too many other people, not living in a single-family home with a yard and tree. Sure, it might be a really nice condo on Boston Common, but it’s still just a small sliver of the power and wealth. Yet it might be the only way they can participate in the future, given the increasing worth of firms, which are otherwise getting too expensive for them to buy into, and the sheer number of people involved.

That means no one will ever again have the control and choices that the founders had, unless they are willing to be founders themselves.

We should be direct and open with our successor advisors about all this—that they’ll have a successful career, good income and perhaps some equity appreciation, but it will be much more structured and less risky than the careers the founders had, and likely won’t lead them to the same dramatic changes in wealth. The lofty prices paid for RIAs by private equity firms during the pandemic may prove to be a high-water mark.

It might seem scary to say those words out loud to your employees: “Your career will be less risky, better supported, and you will do more and achieve more than we did, but you may not make as much and have as much control as we did.”

Some of them will. But their achievement will need to be more extraordinary if it’s going to take them to the same levels of success the industry’s founders had.

Stacey McKinnon is a leader and partner with Morton Wealth, a $2.5 billion RIA in Calabasas, Calif., and coach at the G2 Leadership Institute. Philip Palaveev is the founder of the G2 Leadership Institute, a two-year leadership and management program that trains and develops the next generation of leaders of advisory firms.