[Editor's Note: This is the fourth article in a series. To read the other articles, click here: Article 1, Article 2, Article 3]
Ask the CEOs of most successful firms in this industry and they will tell you that sourcing new clients is no problem. Getting the talent to add lots of them at once, on the other hand, is a completely different story.
Prospective clients are so plentiful that the industry still looks like a land grab. To be sure, unlike back in the aughts, today there is some semblance of competition and a handful of markets (like Boston, for example)—that are overserved. Also different from the past, you actually need some sort of marketing and branding strategy. But in general, if you want to grow organically, there are plenty of opportunities to do so.
That said, the number of new clients that a firm can take on at any one time is effectively capped. Why? Those new clients require 15 to 20 times more resources than do established ones. A typical firm with 1,000 established clients could easily service another 1,000 without having to add many bodies, but if 200 new ones suddenly showed up, the staffing wouldn’t be adequate to bring them onboard.
It is like a boa constrictor trying to eat a deer: The snake can eat lots of them, but its mouth isn’t big enough to eat them all at the same time. It’s similar for wealth managers—and the only way they can widen their mouths is by adding talented staff.
This article is the fourth in a series that looks at the future economic model of wealth management firms. To be blunt, only those organizations who find a way to solve the talent recruitment problem are going to continue to be successful a decade from now. But to do so, they are going to have to reinvent a part of their business model.
The current average age of an industry participant is 57 because for many years, most firms did little to groom successor professionals. And those who did never dreamed that today they could use three or four times as many as they had planned.
Certainly, there are many younger people now entering the field. But there is also an immense shortage of experienced (and, more importantly, talented) people in their mid-30s and 40s. And there is no quick way of filling this gap because it takes a very long time to develop anyone into someone who can recruit and advise clients.
Many firms have tried to fill that gap with entry-level professionals. Unfortunately, more often than not those recruits never quite get there. It is likewise very hard to take people from other financial services industries and convert them into wealth managers.
So how have firms tried to get more talent? Mostly by poaching and/or acquiring.