5. It is essential that larger broker-dealers offer a premier service level for higher producing advisors. The top 20% of producers (which account for 80% of revenue, according to the Pareto principle) have little tolerance for mediocre service and will leave a broker-dealer that can’t deliver a high level of service. We’ve seen some firms set the bar too high, giving the advisors access to higher tier service only after they’ve reached $1.5 million in gross dealer concession. Other firms spread themselves too thin, offering top tier service at low thresholds like $500,000 and including too many advisors in the offering. Giving access to premier service just to the top 20% will raise retention of the advisors who matter most. You could be creative on this as well so that advisors on a fast growth trajectory could also be included, even though their production currently falls under the threshold for a higher service level.
6. If your broker-dealer has 500 employees (meaning 22 employees are doing half the work), realize that you have accumulated a large number of inefficient people. Jack Welch, the former CEO of General Electric, would do an annual purge of 10% of his bottom-ranking employees. Perhaps companies that need to do this are tacitly admitting that there’s something wrong with their hiring in the first place. But because larger firms have a propensity to be less efficient in any case, it’s still prudent to purge some bottom performers.
7. Upper management needs to escape the ivory tower and connect with advisors through phone calls, zoom calls and meetings with advisors in their home cities for lunch or dinner. The leaders of large producer groups need these connections, as do the top 10% of individual producers. At these meetings, advisors get updated on company business, but more important, they get heard and appreciated. It naturally gets harder logistically to meet everybody when a firm is getting bigger, but if managers don’t make the effort, their advisors will feel alienated.
8. Broker-dealers must focus on growing their larger producer groups. Also known as “Super OSJs,” these groups often have their own staffs helping advisors with service. They sometimes act like small firms within large ones, and thus offer the same small-culture qualities. At the same time, these OSJs can give their advisors access to the premier service of the parent broker-dealer, meaning the reps are getting two levels of service.
Economist Thomas Sowell said, “There are no solutions, there are only trade-offs; you try to get the best trade-off you can get, that’s all you can hope for.” There are trade-offs advisors make when choosing among small, midsize and large broker-dealers. Each size has strengths and weaknesses. Smaller firms don’t have the benefit of scale, so they focus on service, relationships and specialization. Large firms, on the other hand, have to battle with their propensity to inefficiency and questionable service, so instead they highlight their technology or depth and breadth of services, offering to help advisors grow and run their practices more efficiently. Large firms also have a major recruiting advantage in their ability to write large up-front checks to the advisors they want to entice.
But remember: For some of these advisors, by year two, the forgivable note has become a seven-year prison sentence.
Jon Henschen is president of Henschen & Associates, an independent broker-dealer recruiter and consultant.