Table of Contents

Introduction 3

Recruiting 5

Identifying the Need 5

Identifying Candidates 6

Hiring the Right Candidate 8

Retention 11

Pay Competitively 11

Align Compensation with Development Goals 12

Make the Firm a Great Place to Work 12

Career Path 14

What Is a Career Path? 14

Advisor Career Path of Well-Managed Firms 16

Becoming a Partner 19

Career Path for Nonprofessional Staff 20

Business Development 21

Owner Compensation 23

Advisor Compensation 24

Conclusion and Additional Resources 25

About Benson Botsford, LLC Reports

This report is a part of an ongoing program of industry research reports, white papers and guides provided by
Benson Botsford designed to keep financial planners on the forefront of trends and competitive challenges facing the
industry today. Offered exclusively to Benson Botsford firms, these reports deliver the kind of relevant and timely
information needed for future business planning.

2
Introduction
The success and growth of fee-based advisory firms is staggering—median growth from 2002-2005 was
24% in assets under management and over 18% in revenues, according to the 2006 Institutional RIA
Benchmarking: Growth Trends Study, which polled 1,200 financial planning firms that custody and
collectively manage over $320 billion in assets. That’s more than twice the 9.8% compound annual
growth in assets posted by major wire houses during the same period, as polled by Cerulli Associates.

There are few limitations on how fast and how profitably practices can grow. One remaining challenge is
the ability of financial planning firms to attract and retain talented staff and successfully develop the next
generation of professionals. Human capital management is a top priority of the most successful firms in
the industry and, in turn, their investment in people is generating superior returns in profitability and
enhanced firm value.

This report is designed to combine the theory of successful human capital management as it applies to
financial services firms with the experience of the top firms in the industry. The goal is to give all owners
and managers of firm’s best practices and methods that Benson Botsford firms can apply in their own
businesses.

Several Principals from these Well-Managed Firms were interviewed in order to identify their most
successful human capital strategies. They’ve indicated that the keys to their success include a strategic
approach and a strong focus on developing employees and providing them with opportunities,
professional satisfaction and life balance. Some ways in which firms distinguish themselves follow:

• Ongoing recruitment of top talent. Recruiting is not an event, but rather an ongoing process of looking
for the best people who have the skills and talent required to implement the firm’s business strategy.
Well-Managed Firms expressed a preference to recruit individuals with demonstrated accomplishment,
whether in professional or academic careers. They put almost as much emphasis on attracting staff as they
do on attracting clients. And they make a conscious effort to expand networking opportunities to help
identify potential candidates.

• Emphasis on the complete person; not only technical skills. Firms recruit people with great
motivation and talent and do not necessarily focus on technical skills alone. They look for the fit between
the person and the culture as well as the fit between the job and the skills. These firms use an extensive
and deliberate recruiting process to ensure that selected candidates become the foundation of the firm’s
future development.

• Clear and structured career path. Well-Managed Firms offer their employees a clear progression of
increasing responsibilities, challenges and rewards. They understand the need to systematically develop
their people, provide guidance and share expectations.

• Competitive compensation. Firms don’t hesitate to compensate appropriately in order to attract

exceptional talent and motivate current employees. Their underlying philosophy is to compensate in
alignment with their expectations of the individual’s professional performance, which does not
necessarily mean paying the most in absolute dollars.

3
• Excellent communication with employees. These firms excel at communicating their vision and their
plan to employees with clarity and consistency. They put a high priority on involving their people in all
strategic initiatives as well as measuring and articulating results.

• Fostering a culture of opportunity and respect. “Good culture attracts and retains good people,” one
principal told us. All Well-Managed Firms ensure they create a culture in which motivated individuals
can flourish. They also develop an environment built on respect, with opportunity for professional as well
as personal growth.

• A clear strategy. Well-Managed Firms also tend to have a clear, well-articulated plan for human capital
that is integrated into the firm’s overall strategy for growth. People and processes are optimized, staffing
policies are well-defined, and capacity needs are anticipatory rather than reactionary

4
Recruiting
The challenge for the financial services industry, especially for firms seeking to leap to the next level in
growth, is uncovering the right people to join their growing organizations. If a firm lacks a recruiting
strategy, then the organization is at a significant disadvantage when it seeks to hire the best people to fit
its culture and business philosophy.

Recruiting must integrate with the overall business strategy. Many firms incorporate the professional
qualities of their staff, such as experience and accreditation, into their value proposition to clients and
prospects. If the firm wants to grow according to measured and deliberate strategic goals, then it is
imperative that the right people are selected to help achieve these goals. Successful recruiting builds
depth, leverage, skills and capabilities.

The recruiting process has three central component s: identifying the need, identifying candidates and
performing candidate evaluation.

Identifying the Need

Most Well-Managed Firms arrived at their current recruiting methods through years of trial and error.
Oftentimes, those defining experiences occurred when these firms and their candidates were unable to
effectively communicate their respective expectations or when there was an ill-defined but urgent need.
One firm had a particularly instructive experience. The firm brought on an individual without first clearly
defining what they wanted the individual to do, other than to help the firm fill a need with client relations.
The individual, coming from a more rigid corporate environment, expected a different role than what
was needed at the more entrepreneurial and independent firm. The relationship failed because of differing
expectations.

Today, theses firms are converging toward a set of recruiting practices that minimizes the risk of being
caught unprepared when confronted with unexpected turnover, and maximizes the return on investment
and efficiencies for locating new talent.

• Monitor capacity. All these firms acknowledge that searching for and hiring the best people has a cost,
and each addition to the organization must bring a greater degree of leverage in order to be a suitable hire.
While these firms are always on the watch for the right candidates, they are also disciplined in evaluating
the financial impact of an additional hire.

Most firms evaluate the decision to hire from a client-capacity perspective. At least once a year, they
examine anticipated client growth and staff productivity to identify critical times for hiring. Many
principals regularly review the organizational chart to make sure their firm can efficiently and profitably
handle new client relationships: Other firms have a targeted asset goal and they back in to this the number
of people that a senior client manager can handle.

5
• Identify the characteristics of the ideal recruit. The ideal candidate exists only for a specific job
description. Early in their history, some of these firms learned this the hard way. Firms need to develop a
thorough job description before seeking out candidates and broadly consider criteria that would make
someone a good fit for the position. For example, when a Chicago-based firm, sought to fill a technical
specialist position, they wrote a very comprehensive job description. Instead of requiring proficiency with
a particular technology system, however, the description included characteristics the firm felt would
demonstrate good potential for quickly becoming proficient with this system. The underlying lesson is
that a job description should establish a framework of the following factors:

• What are the major categories of work expected in this position (e.g., financial planning, insurance,
investment analysis)?

• What is the general knowledge level required?

• What is the professional/academic experience required?

• What personality traits are required (e.g., self-motivated, team-oriented)?

• What specific areas of expertise, such as systems, are required?

• What motivations and interests would make the candidate successful?

• What is the professional environment a candidate can expect at the firm?

Note: The Benson Botsford Management Team can assist you in articulating/writing such a
comprehensive job description.

Identifying Candidates

• Now is always the best time to recruit. Most of the Well-Managed Firms adhere to a single recruiting
principle— always be on the lookout for the best people. This does not mean they look for the most
intriguing prospects. Firms seek the best people for the skills their business strategy requires. They will
hire earlier than needed for scarce skills they know they will eventually require.

From the perspective of firm management, a recruiting strategy is not event driven. It is a constant
process of seeking out the best potential employees and managing capacity, allowing the firm to maintain
an aggressive presence in an increasingly competitive market. It also is an effective defensive strategy in
cases where an employee unexpectedly departs from the firm. Given their focus and plans for future
growth—not just replacement of current staff that might leave—this is a very appropriate and effective
strategy.

• Cultivate a range of traditional and nontraditional recruiting sources. Just as successful advisors
continually network among their client base for prospects, the firm managements uses a spectrum of
candidate sources to cull the best qualified recruits. Many firms maintain a presence in national and local
professional organizations, such as the Financial Planning Associations (FPA) and the Estate Planning
Council. Local colleges and universities also are a prime source for future recruits, especially if firms
have internship opportunities. Well-Managed Firms communicate with career service offices in academic
institutions and advertise with finance-related departments. ValMark Securities is an example of a Well-
Managed Firm successfully using interns.

6
Some of the best recruits, according to the firm principals, are referred from clients. Because those clients
are aware of both the nature of the work and the culture of the firm, the firms can usually gather better
candidates while deepening client relationships. If the employee were not to work out well in the position,
ensure that letting them go would not damage the firm’s relationship with the client who referred the
candidate. Make sure the client understands up front that you will need to manage, train, and potentially
outplace the candidate they recommend in the same way you would any other candidate if there is a bad
fit or bad performance. Similarly, the firm’s own employees also can be an excellent referral source.

One firm owner explained their approach: “We just established an internal referral program. If a non-
owner refers a candidate for an open position, and that candidate ends up working for the firm for at least
six months, they get a $1,000 bonus. This method helps us preserve our firm culture as well, because we
are getting people more like our existing people.”

This chart illustrates the use among firms of a variety of recruiting methods. Note that compared with
other firms, Well-Managed Firms are apt to make more use of every method.

Most Successful Recruiting Methods

45%
40%
35%
30%
25%
20%
15%
10%
5% All Other Firms
Column1
0%
g es s es r
kin sit Ad sit am he
r b ed b gr Ot
wo e
ifi
e
P r o
Net cW as
s cW P
/ ifi Cl ifi CF
als ec ec
m
rr Sp Sp fro
fe try try
Re us us ng
d d iti
In In ru
n- ec
No
usR
p
m
Ca

Typically, the more complex the job description, the more formalized the recruiting process becomes. For
instance, most firms employ a headhunter or recruiter when seeking a chief investment officer or business
development specialist. With positions such as paraplanners, firms are able to cast their net wider and
pursue candidates from a variety of sources.

7
• Be innovative and move beyond traditional recruiting practices. There are some recruiting
requirements for the advisory industry that are usually indispensable: a bachelor’s degree, knowledge of
finance and prior work experience. For those with internship programs, the prior work experience at the
firm is an advantageous qualification. Well-Managed Firms, compared with other firms, are particularly
on the lookout for bachelor’s degrees, CFP, CPA, MBA and CLU credentials. Many firms, however, have
either expanded or departed from some of the common practices for hiring in an advisory practice.

Some Well- Managed Firms do not weigh previous industry experience as heavily as might be expected.
They look for personal and professional qualities that are a sound match for their firm. Often, a person’s
past success in other industries or general professional connections are more important than familiarity
with financial advisory practices. The composition of the ideal recruit may also include learning
proficiency and client-service orientation.

Most Sought-After Credentials

90%

80%

70%

60%

50%
Well Managed Firms
40% Series 3

30%

20%

10%

0%
CFA MBA CPA BA/BS CFP/CLU/ChFC

A related word of advice comes from a local Chicago firm: “Tell everyone that you might have an
opportunity for someone, and be willing to train. Hire the right mentality, the right personality and teach
the technical skills.”

Hiring the Right Candidate

Once a firm identifies a pool of potential candidates, the next step is candidate evaluation—probably the
most critical and cost-effective component in a successful human capital strategy. States Jim Collins, the
frequently quoted author of Good to Great: “People are not your most important asset. The right people
are.” A resume review and an interview are standard recruiting procedure. But, increasingly, advisors are
finding that those two steps are insufficient for accurately gauging personality fit, ambition, enthusiasm
and passion for service. Well-Managed Firms are among those in the industry that have gone beyond the
resume/interview combination and created a series of candidate challenges to ascertain a comprehensive
profile for each candidate. For these firms, candidate selection for most positions is a thorough and

8
unhurried process because they hire for a career path as much as for the specific available position.
Applying a range of selection techniques and methods up front drastically reduces employee turnover and
its associated economic costs.

Well-Managed Firms take a holistic approach to candidate selection. Candidates are engaged in a series
of interviews with principals, senior professionals and other staff members to enhance their familiarity
with the firm and vice versa. Most firms have instituted psychometric and/or personality testing to gain a
sense of an individual candidate’s work style and cultural fit with the firm. Using these processes enables
the Well- Managed Firms to evaluate past professional experience and the potential for future success.
The Well-Managed Firms typically plot out their recruiting efforts with a lengthier time frame and
systematize each step to achieve a specific goal of testing and interaction with the candidates.

There are several common candidate-selection procedures used by Well-Managed Firms:

• Candidates should meet the team. While principals typically make the final hiring decision, they have
found it more efficient and valuable for a candidate to meet with most professional and staff members as
well. The process is kept manageable and in larger organizations is restricted to firm members who would
be in the immediate working group with the candidate.

Recruiting Timeline
Candidate Employee
First Month Second Month Third Month
Firm notifies targeted recruiting First round of in-person interviews. Beginning of third month a firm should
sources (e.g., peer/association First to interview candidate is the firm have narrowed the field of candidates
networks, referrals, online job sources, owner and/or the Director of Human down to 2 to 3 highly qualified
etc.). Resources. potentials.

Potential candidate resumes are Firm tries to gain an in-depth
gathered. understanding of the candidate’s
qualifications and background.
Interview questions will cover areas
such as:
Third round of in-person interviews.
Group interviews with staff members.
° Goal is to see if candidate will be a
good match with the current staffing mix

1. Prior work experience

2. Educational background—
degrees/designations

3. Examples of job successes

Initial phone screening of potential
candidates.
Schedule time for first round of in-
person interviews.
Second round of in-person interviews.
Candidate to meet with potential
supervisor. Interview questions will be
similar to first round. Testing may be done
during this interview such as:
° Skills testing through basic
knowledge exam and/or case study
° Personality testing
Recommendation: Consider inviting
candidate to firm social event as a way
to see how they interact with current
staff
Make a hiring decision. This entails a
review on what base salary will be
offered and which employment contracts
(i.e. non-compete agreement) may be
required.

° Psychometric testing

9
Many principals have found this technique accomplishes two purposes at once: If you want to pursue a
candidate, you should allow them to interview your firm—they get to interview every person in the
organization and vice versa. The candidate gets to ask questions about your culture. It also allows your
team to weigh in and buy in on the hiring decision.

• Employ a series of tests to measure the entire individual and evaluate skills. More so than other
firms, many of the Well-Managed Firms have gone beyond the resume/ interview format and are now
using a variety of evaluation tools to get a fuller sense of an individual’s personal and professional
compatibility with their organization.

While 67% of Well-Managed Firms employ some type of candidate testing, just 57% of other firms do.
One popular tool is The Profile XT™, which compares an individual’s thinking style, behavioral
characteristics and occupational interests against a position-specific job pattern. This kind of assessment
provides an indicator of how the individual will perform in that position. Kolbe provides another family
of tools frequently mentioned by firms, particularly the Kolbe A ™ Index test, which gauges a candidates’
instinctive method of operation. If the individual is hired, these tools continue to add value to the firm as
indicators for managing and coaching.

Many firms also use a financial planning case study to measure a candidate’s fluency in client relations as
well as technical proficiency.

• Define the characteristics of a good interview. Unanimously, Well-Managed Firms strongly believe
that interviews should move away from resume discussions and instead test a candidate’s critical thinking
ability and interpersonal skills. Because the advisory business is built on client relationships, firms pay
keen attention to how candidates communicate and relate to unconventional interview questions. Several
firms shared thoughts on conducting effective interviews. Ultimately, this is a communications business.
It’s a very one-on-one type practice, and a candidate must appear professional, be a good communicator,
speak at the client’s level of understanding and keep the client at ease. Good communication skills and
being presentable are just as important as the technical skills. An interview should test those traits as
much as it does any technical proficiency.

10
Retention
Employee retention is critical to a firm’s success because high turnover is costly and disruptive. Well-
Managed Firms recognize that the success of their organizations depends on human capital. On top of a
disciplined recruiting practice, they also must develop ways to retain top talent. Key tactics include
paying competitively, aligning compensation with business goals and making the firm a great place to
work. Firms discuss these topics at annual board meetings and retreats, treating them with the same
diligence as issues of profitability and growth.

Pay Competitively

The compensation philosophy of Well-Managed Firms, more so than that of other firms, focuses on
paying competitively within the industry, with many aiming toward the upper quartile of benchmarks.
They recognize the need to attract exceptional talent and motivate current employees with competitive
compensation.

To ensure that staff compensation is adequate, many principals refer to The Financial Planning
Association’s biannual Compensation and Staffing Study, a comprehensive source of industry
benchmarking information. The Well-Managed Firms rationalize an individual’s base compensation on
factors such as whether the individual was successful in their previous position and the attainment of
degrees and/or credentials. However, many firms acknowledge that money is not always the answer or
the biggest motivator. Well-Managed Firms, in relation to other firms, also tend to be more generous
with employee benefits. Well-Managed Firms, on average, spend 16% more on employee benefits than
other firms, and their employees are more likely to be offered retirement benefits through a 401(k)
program.

Benefits per Employee

Well-Managed Firms
$6,654 All Other Firms
$7,735

11
Align Compensation with Development Goals

Within the Well-Managed Firms,

100% employees are not treated as expenses, but
90% considered as one of the most important
80% firm assets. Consistent with this view,
70% these firms are conscious of aligning
60% compensation structure with development
50% goals that encourage retention and realize a
40% greater return on investment for the firm
30% Percentage of with regard to staff. Jim Collins in Good to
20% Firms Who Offer Great frames it this way: “The purpose of a
10% Benefits compensation system should not be to get
0% the right behaviors from the wrong people,
s s but to get the right people on the bus in the
iF rm iF rm first place and to keep them there.”
ed r
ag he
an l Ot
M Al
le l- Staff performance evaluations are a critical
W
tool for tying compensation to career
development. Employee salary reviews are
highly institutionalized at the Well-Managed Firms. The majority of firms interviewed agreed that regular
performance reviews are a crucial component in maintaining high employee retention. Well-Managed
Firms, compared with others, are more likely to conduct performance evaluations and tend to conduct
them across a wider breadth of personnel categories. These firms maintain that the evaluation process
should accurately measure performance with clear feedback provided to employees regarding expected
and exceptional behavior.

Many firms also implement firm-wide incentive plans that are applicable to all staff, so that everyone can
share in the success of the firm and so they are all motivated to contribute toward the firms’ success.

Percent of Firms Conducting Performance Evaluation by Staff Type

12
 100%
90%
80%
70%
60%
50%
40%
30%
20%
Well-Managed Firms
10%
All Other Firms
0%
ta
ff rs ls aff ta
ff aff
S ne na St St
y w is o t tr S in
.
An O es en o
r of em pp dm
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No ica
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De

Make the Firm a Great Place to Work

Creating and maintaining a culture in which motivated individuals can succeed was among the most
frequently mentioned means for retaining employees. This includes developing an environment of respect
and professionalism as well as personal growth. But perhaps most importantly, this means paying
attention to a host of little things that contribute to making these firms great places to work. To do this,
Well-Managed Firms employ several tactics. They emphasize that a team-oriented environment with open
communication fosters better working relationships, in addition to providing learning opportunities.

Most firms schedule company-wide meetings to ensure that there are regular opportunities to address any
concerns and provide positive feedback. One firm uses their weekly team meetings to encourage and
praise their staff members. They also employ team recognition statements as tools for positive
reinforcement. In some firms, lunch is brought in every day and provided free to employees. This leads to
informal staff meetings every day at lunch time. It costs them more money, but they gain extra
productivity in terms of better office communication and less time lost from people leaving the office.

Finally, Well-Managed Firms want their employees to be well-rounded and happy in their personal lives.
At some firms, the approach is to take care of the people who will take care of their clients who will make
money for the firm. They call it the “circle of life”. Employees are much more productive if there is a
healthy life balance. If one of your goals as planners is helping clients live a better life, then you need to
model it with your own employees.

Career Path
13
What Is a Career Path?
The term “career path” refers to a progression of increasing skills, responsibilities and contributions. A
career path takes an employee from one job level to another and exposes the individual to new challenges,
promotes his or her status in the firm and can correspondingly increase their compensation. Compared
with others, Well-Managed Firms have a greater tendency to have career path programs in place as well
as training programs to assist employees in career advancement. Career paths are critical for retention.
Employees looking to leave their firms cited “do not see work as challenging” and “supervisor not
concerned with their development” among the leading factors in seeking other jobs. Both reasons
outranked “do not see their pay as fair.” For a firm to be able to say that it offers a career path to its
employees, however, it should satisfy the following criteria:

Percentage of Firms with Career Track or Training Programs

60%
50%
40%
30% Well Managed Firms
All Other Firms
20%
10%
0%
Career Track Formal Training
FPA Staff Satisfaction Survey, Moss Adams LLP, 2006

1. Clarity. The career path has to be clearly defined in order to be effective. A career path presents a
goal-driven plan for the entire tenure of an employee inside the firm. It works through developing
consistent and shared expectations between management/ownership and staff. A career path is not a legal
contract, but rather a statement of philosophy and values that creates a professionally (if not legally)
binding mutual agreement. As with any agreement, the clearer it is, the less chance that either side will
feel that the agreement has been breached. At minimum, a good career path articulates several points of
understanding:

a. The positions or levels within a position that an employee can pursue during their tenure in the
firm. The path should be structured to reflect what an employee can realistically strive for and
possibly achieve. Many firms, including some of the Well-Managed Firms, have only defined a
portion of the career path, leaving the top of the ladder somewhat undefined. This may be
practical when the firm does not have employees that are close to top levels, but ultimately this
may affect motivation and culture. Nearly all Well-Managed Firms made the statement that they
recruit people who have the potential to one day be at the top of their profession. If they are going
to be consistently motivated by that goal, they need to see it—and the steps to get there—more
clearly.

b. The responsibilities of each position and job level, the skills required and the experience
necessary to be successful in that position (i.e., both job descriptions and defined performance
expectations are an absolutely necessary part of the career path).

c. The milestones that a person has to achieve in order to be considered for the next level.
Milestones should not be the only criteria for advancement, but they should be measurable and

14
 tangible in order to allow employees to track their progress. Unless measurable criteria are part of
the path, employees can feel that they are tied to the subjective evaluations of their superiors.

d. The reward for achieving the next level—both financially and otherwise. Employees need to
understand and evaluate how attractive the destination is. They need to have a general
understanding of realistic ranges of income they are striving for and the compensation drivers of
each level. They will benefit from understanding the nonfinancial rewards, such as greater
exposure to clients, recognition outside the firm, input into decisions, etc. Job expectations must
be mutually understood by both the individual staff member and the firm. The career path is
about professional growth, and the criteria for that growth should be both measurable and easy to
understand. For instance, many Well-Managed Firms have established the attainment of a CFP or
CLU designations as a requisite for upward career mobility.

2. Communication. The career path has to be communicated in a development plan to employees in

order to be effective. If both the employer and the employee do not have a copy of the plan, chances are
they will walk away with different interpretations. From a communication perspective, the career
development plan should consider several factors:

a. Coaching and Counseling: Employees should know where they stand and be able to work with
someone on how to move forward. Career counseling allows employees to understand where they
are in their progression. Typically, the counselor is a senior professional or senior administration
professional who is able to share both experiential and career advice. Formal counseling meetings
should be scheduled quarterly, though many Well-Managed Firms encourage an ongoing
informal relationship. These conversations should be opportunities for honest dialogue about the
challenges and successes of the individual. The outcome should include some specific
recommendations about how to address areas for improvement and how to continue to build on
current success.

b. Personal accountability: Ideally, every employee should understand that they have the ultimate
responsibility to develop their own careers. The responsibility of the firm is to provide an
environment where motivated and talented people can thrive. Practically, though, firms are
inconsistent in terms of who should be creating opportunities—the employee or the firm. The
answer differs for each firm, depending on its values, philosophy and strategy. Many Well-
Managed Firms are adamant that employees have to create their own opportunities for
advancement (meaning attract new clients, develop new services, etc.) and that the role of the
firm is to provide the resources for employees to succeed in the pursuit of their own goals. On the
other hand, some firms feel that the firm should be creating opportunities and presenting them to
those who are ready to take advantage of them. Which side of this fence an advisory firm stands
on depends on their firm philosophy. That philosophy plays a central role in the career path
structure, as well as recruiting, compensation and equity participation planning.

c. Priorities: In the end, the criteria for advancement should be outlined. The firm needs to present
clearly:

I. Required skills or accomplishments

II. Most important achievements

III. Skills that may be considered substitutes for certain required skills
For example, one of the common challenges for firms is to resolve whether business development is a
necessary part of being eligible to become a partner or senior advisor. (The issue of business development

15
will be discussed in detail in the next section.) Can an employee substitute business development with
outstanding client service or technical innovation? Are some sources of new clients given higher priority
than others?

3. Recognition of both knowledge and experience. Knowledge and experience may seem like obvious
factors in structuring a career path. What distinguishes successful financial firms, such as Well-Managed
Firms, is in how they measure knowledge and experience. The right metrics often determine the
suitability of a decision to promote an employee. One firm has created a proprietary training program for
their staff called the Planning Career Program. The program places junior professionals in various jobs
around the firm, including operations, client service, planning and marketing. After approximately five to
seven years in the program, these professionals earn the position of client relationship managers. Further
advancement requires a CFP or CLU and enrollment in a master’s degree program in tax, finance or
business. As the firm Principal states, “We not only expect on-the-job training but real education as well.”

4. Consistency. Once developed, a career path has to be consistently enforced and supported. Promoting
people who do not meet the criteria, hiring people out of the career path, or creating new levels to
accommodate certain employees are common mistakes that undermine credibility of a career path.
Similarly, enforcing equitable compensation is part of maintaining credibility for all positions along the
same path. Consistency does not mean rigidity, however. In a dynamic industry such as financial services,
Well-Managed Firms have found success by framing the career path but encouraging individuals to
explore unique ways to fulfill position expectations. Some firms do not proactively encourage advanced
degrees such as an MBA, but sponsor those programs when staff members take the time to plot out an
educational plan and submit it to the firm for review.

5. Real progression. A career path implies advancement. To be effective, the career advancement has to
be real, however. There is no point in creating artificial levels of responsibility just to give people more
chances for promotion. The incremental reward will probably not be much appreciated, and employees
generally see through these tactics.

6. Tie to strategy and profitability: The characteristics that take a person from one level to another
should be the characteristics that the firm needs to successfully execute its strategy. Further, the career
path implies progression in compensation, and that progression needs to be aligned with the economics of
the firm overall.

Advisor Career Path of Well-Managed Firms

The career of an advisor develops along a continuum consisting of as many as five basic skill sets. These
skill sets are cumulative, building on each other throughout an individual’s career path. While all are
necessary, some skills developments take priority. Furthermore, the skill sets do not have a “finish
line”—the advisor should pursue incremental improvement and build knowledge throughout his or her
career. The milestones in the career path tend to correspond with the mastery of these skills:

1. Technical skills. Advisors become technically proficient in theoretical knowledge of personal finance,
the tools of financial planning and investment advice, the financial solutions available, and the practical
application of theory to create real life solutions for clients.

2. Project management skills. Advisors need to master the ability to organize and use resources, take
responsibility for efficient solution and supervise the work of others. The delivery of advice to clients

16
inside Well-Managed Firms is rarely a one-on-one process. The delivery is complex and requires the
involvement of multiple people.

3. Relationship skills. Advisors become experts at managing existing relationships and defining and
executing the client delivery process.

4. Firm management. Over time, some senior advisors develop the skills to tackle strategic issues for the
firm, develop and train staff, and manage profitability. This is a role that is played typically by the
principals and some of the senior non-owner advisors. Not all advisors become CEOs and COOs, but
regardless, among the senior professional staff (i.e., principals and top non-owner advisors) management
functions typically average 20% of their time.

5. Business development. Responsibilities for acquiring new client relationships usually are assigned at
the top level of the career path. Of all senior professionals at Well-Managed Firms, 91% of the principals
are involved in this role and 69% of the senior non-owner professionals have some business development
responsibilities. This fifth skill, the subject of the next section, presents a dilemma to many firms. Given
the importance of retention, there are Well-Managed Firms that are inclined to promote people to the top
level of the career path without business development responsibilities. Nonetheless, the business
development function is a responsibility of most top positions.

The evolution of these five skill sets can intuitively correlate with five steps in the career path. With each
successive level, the focus moves from technical skills to project management to relationships and finally
to firm management and business development. Responsibilities at each level commonly found within the
Well-Managed Firms are summarized below:

• Support advisors (Level 3). Support advisors perform analysis and tasks assigned to them by service
advisors and lead advisors. They have no responsibility for recommendations or advice and relatively
little client interaction. The average support advisor has eight years of experience (four years of tenure)
and is responsible in a secondary role for 45 clients, contributing toward $433,000 in revenue.

• Service advisors (Level 2). Service advisors’ main responsibilities are to deliver advice and services to
clients, but typically, do so under the supervision of an owner/ lead advisor or lead advisor. While they
have responsibility for formulating recommendations, their advice is usually reviewed and/or approved by
another more experienced professional. The typical service advisor at Well-Managed Firms has 10
years of experience (four years of tenure) and manages 25 relationships as a secondary advisor and 39
relationships as the primary advisor (indicating progress toward the next level). They generate $151,000
in revenue from primary relationships and also contribute an additional $643,000 working with
owner/lead advisors or lead advisors.

• Lead advisor (Level 1). Lead advisors are senior non-owner professionals primarily responsible for
managing existing client relationships. Lead advisors work with no supervision other than general firm
policy and compliance procedures and are responsible for client retention and satisfaction. The typical
lead advisor at a Well- Managed Firm has 15 years of experience (six years of tenure with the firm),
manages 68 relationships as a primary advisor and 52 as a secondary advisor (working with an
owner/lead advisor). Each generates $531,000 in revenue from their primary relationships, and the focus
of their position is relationship management.

• Owner/lead advisor. Ownership typically coincides with a shift of responsibilities into business
development and firm management that separates the owners from the most senior professionals. The

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 typical owner/lead advisor at a Well-Managed Firm has 18 years of experience, manages 104 client
relationships and generates $1,276,000 in revenue. The key responsibility for owner/lead advisors,
however, is typically the development of new relationships.

Advisor Career Path within Well Managed Firms

Level 3 Level 2 Level 1 Principal
Progression of skills and Technical Skills
responsibilities
Project Management
Relationship Management Firm Management

Business Development
Milestones 49% are CFP/CLUs 61% are CFP/CLUs 63% are CFP/CLUs 80% are CFP/CLUs
Degrees and destinations 17% are CPAs 25% are CPAs 32% are CPAs
Years of experience 8 10 15 18
Clients served as primary
advisor - 25 68 104
Clients served as secondary
advisor 45 39 52 -
Revenue from primary - $151,947 $531,488 $1,275,957
Revenue from secondary $433,117 $643,457 $346,802 -
Total compensation $80,184 $87,620 $154,577 $530,705

These levels summarize the most common responsibilities inside financial advisory firms and define the
milestones that typically differentiate each level. However, principals should review their own
organizational structures before choosing how many levels they need in the advisory career path. The
following questions help define the issues:

• What is the client service experience? How many people are typically involved in a client relationship?
If the firm generally uses a simple process involving two people, it will be difficult to implement four
levels of responsibility.

• What is the owner’s job description? In most firms the responsibilities of the owners shift toward
management and business development. Ownership itself is not necessarily part of the career path,
however, and it also is not necessarily tied to business development. The job that an owner fills within the
business needs to be well-defined, as do the performance expectations and desired outcomes.

• What is the range of compensation in the firm and does it allow for several layers? The firm should
review its target compensation and methods to determine if there is room for implementing multiple
levels of the advisory position. Promotions must lead to increased reward and responsibility. If there is
little differential between the highest and lowest paid advisor in the firm, the compensation structure will
have to change to allow for multiple job levels.

Becoming a Partner

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One pressing issue for the Well-Managed Firms is defining the final step of the career path for their most
senior professionals. In most professional services industries (accountants, lawyers, etc.) the lure of
ownership is significant in attracting new talent and retaining the best people. As relatively young
organizations, these Well-Managed Firms are looking to define both their comfort level with expanding
ownership and the preferred method for introducing new owners.

At present, only 4% of Well-Managed Firms offer ownership as part of the career path. This is lower than
the 10% of all other fee-based advisory firms that offer employees ownership interest in addition to cash
compensation. Ownership—among the Well- Managed Firms who offer it—is reserved for professional
and dedicated management staff. Over and over, Well-Managed Firms reiterate that equity participation
should not be positioned as a gift or a right. It should be a privilege in recognition of outstanding service
and contribution to the firm—in terms of revenue, client relationships, internal management, staff
development and positive impact on the firm’s culture.

The question of whether firms can be successful without expanding ownership is a pressing issue. The
answer is dependent upon each firm’s specific business, human capital strategies and exit strategies.
Several parameters influence the decision:

• What is the profile of the ideal advisor who the firm wants to recruit and retain? What role does
ownership play in motivating that employee? Firms that recruit entrepreneurial, independent types of
people who eventually develop into great business developers and marketers will have to strongly
consider offering ownership. Typically, entrepreneurial advisors are drawn to owning the outcome of
their efforts. These are higher risk/ higher reward individuals. On the other hand, firms looking for
experts with higher reliance on structure and organization and less focus on marketing and business
development may find that ownership is not a primary motivator for the best advisors. In fact, they may
prefer lower risk/reward systems.

• What is the concern around expanding ownership, and can it be addressed through good design? Some
of the concerns, such as loss of control, can be addressed through designing ownership plans that make
sure that the founders continue to have full control of the business. Some Well-Managed Firms are
proactively searching for their own alternative to direct equity participation. They recognize participation
in the firm’s success is a powerful tool for retention and are exploring programs that offer the financial
rewards of ownership but without interfering with the control. These alternatives include stock options,
phantom stock or synthetic equity, and stock appreciation rights.

• Who develops business and how? The more the firm relies on individuals to create and capture
opportunities, the more likely it is that these individuals expect an equity opportunity. Looking across the
broader professional services industry, many larger accounting, consulting and law firms offer equity in
some form to their top professionals. While firms can design ways around this, this will be a necessary
step in the long term in the absence of a sale to an external buyer.

Career Path for Nonprofessional Staff

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Well-Managed Firms recognize that handling career aspirations for nonprofessional staff is critical if they
want quality talent to remain with their firm. At these firms, career paths usually are segmented
departmentally, and administrative departments tend to have less aggressive career paths. A challenge for
these firms is how to retain key administrative staff, such as portfolio administrators, who are in roles that
don’t naturally fit into a well-defined career path.

The response of many firms to this issue is to “create heroes in every role.” This is a term coined by
Marcus Buckingham and Curt Coffman in their book, First, Break All the Rules. It sums up the
recognition that promotion is not the only route toward respect and prestige within a firm. Any role,
performed at excellence, is a respected profession and excellent performance can be rewarded without
necessarily promoting employees out of their current role.

In this light, Well-Managed Firms continually encourage nonprofessional staff to master the more
complex aspects of their roles or take on more responsibilities within the same roles in order to motivate
and retain these individuals. In addition to using compensation as an incentive to excel within an existing
role, Well-Managed Firms emphasize perks such as flex time, new office furniture or technology
enhancements as well as formal and informal recognition programs.

Well-Managed Firms may also offer these employees variety in the form of a rotation of job
responsibilities. From the firm’s perspective, this practice also builds a level of safety by providing back-
up staff for certain functions.

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Business Development
To continue growing, Well-Managed Firms need to continue developing new client business. As
successful as they have been in expanding their reputations and growing their client bases and assets,
these firms recognize they need to build more structure into their strategies of business development. The
role of business development in the career path and the incentive compensation associated with business
development are among the most important strategic issues for these firms.

In 2006, Well-Managed Firms increased their client base about 11 % in gross terms through acquisition of
new clients. Referrals from existing clients were the primary source of clients for these firms and
accounted for 45% of all new clients these firms developed. The second-largest source was referrals from
professionals outside the organization (CPAs, lawyers, etc.), which accounted for 24%. The third was
active business development done by principals from other sources, which brought in 16% of all new
clients.

The issue facing many firms is that the reputation of the firm and its business development efforts may be
tied too closely to the founding principals. If it doesn’t add new business developers, the firm may
experience slower growth in the future and be vulnerable after the founding principals retire. On average,
non-owners at Well-Managed Firms brought in only 2% of all new clients in 2006. The low contribution
of non-owners to the development of new business is indicative of:

• Firms focusing non-owner advisors on the retention of existing clients

• Non-owner advisors focusing business development on referrals from existing clients, other
professionals and institutional referral sources

By itself, this composition of sources of new business (with heavy reliance on principals and referrals)
may not be an issue and is fairly normal for most professional services firms. However, it exposes some
shortcomings that should be addressed, particularly in light of a rapidly aging ownership base. In 2004,
27% of owners said they planned on retiring within the next 10 years. 1 For Well-Managed Firms, where
firm age averages 18 years compared with 13 years for other advisory firms, the challenge is even more
pressing.

As a result, 26% of the Well-Managed Firms sought to add a specialized business developer or rainmaker
to their staff in 2005. The typical expectations for such a position were to develop 30 new client
relationships, translating into $41.5 million in new assets and median incremental revenue of $349,000.

Several of the Well-Managed Firms do not yet have a full-time business development specialist.
Typically, the business development function involves sales and marketing to attract new clients into the
firm. Compensation for an individual with business development responsibility is unique in that total
compensation is heavily weighted to variable pay versus fixed pay because new client revenue generation
is a large factor in determining job performance.

In addition to hiring, Well-Managed Firms are taking other active steps to solidify their business
development capability:

1 FPA Financial Performance Study of Financial Advisory Practices, Moss Adams LLP, 2006

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• Introducing the team approach to clients early in the process. Firms introduce the team approach
early on with clients to avoid transition concerns if business development is done through a dedicated
rainmaker. It is important that the expectation is made clear from the beginning so the client is not misled
and they get acclimated to not viewing the business development specialist as the ongoing contact,
recommends

• Providing early training. Advisors with business development responsibilities require early training in
order to develop the skills and experience to be successful at their role. A mentoring program is the most
commonly used training tool as it provides a firsthand look at the skills needed for business development.
Mentoring is also the best way to enhance an individual’s experience. “A junior staffer is along on every
prospecting call before they are allowed do it on their own... You must continually grow employees to
fuel passion and career desires,” explains a firm principal.

• Using a marketing director. A marketing director is responsible for getting the firm name out in the
market and developing possible network opportunities for the principals and/or advisors to attract new
client relationships. Some marketing directors also oversee development of individual marketing plans for
each advisor at the firm.

According to a firm principal, the function of their marketing director is to “create interest and
opportunity. They will get us in articles, quotes from the media and network with different community
organizations and associations just to keep our name out there.”

For training, firms may want to incorporate business development skills into the career path. A good
business developer will gradually acquire and enhance the following skills:

1. Recognize needs and opportunities in an existing client relationship and be able to recommend new
solutions. This stage should be actively encouraged and promoted when an individual reaches Level 2
Advisor.

2. Proactively seek referrals from existing clients. This stage should be developed with Level 2 Advisors
as well.

3. Convert a referral into a new relationship by introducing the client to the firm. Convince the client of
the firm’s as well as the advisor’s capability, credibility and ability to understand and service needs. This
development stage typically occurs when advisors reach Level 1.

4. Create a reputation and presence in the local marketplace that is capable of generating leads. This
should be a personal reputation that builds upon the firm reputation and complements it by adding unique
expertise or market focus. This is often a defining factor for new owner admission.

5. Structure and negotiate referral agreements and represent the firm in front of possible institutional
referral sources—a function typically reserved for the most senior principals.

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Following are suggested metrics for development around the first four steps.

Business Development Skills

Cross Sell Obtain Referrals Close Sales Develop Leads

Level Level 2 Level 2 Level 1 Principal

Metric New Assets New Referrals New clients New leads
New Services Percent New clients
conversion New assets
New revenue New revenue
Example Budgets $2MM new assets 20 new referrals $250,000 new revenue $30MM new assets
15 new clients $300,000 new
revenue

Owner Compensation
The manner in which owner compensation is structured bears significant implications for the firm’s
economic agility. Furthermore, it resonates as a statement on the opportunity for partnership and impacts
the financial affordability of new partner additions.

When categorizing the different components of owner compensation, it is useful to follow this formula:

Owner Compensation (base & incentive) + Owner Profit Distribution = Owner Income

Many of the Well-Managed Firms have adopted this formula for organizing owner compensation. More
so than other firms, approximately 60% of Well-Managed Firms apply an objective metric to determine
base salary, either against the general marketplace or against individual revenue performance within the
firm. Ten percent elect to create salary equivalence among their partners. No firm determines owner
compensation strictly based on prior year revenue contribution (draw).

Because the Well-Managed Firms’ principals remain in a predominantly client service role, their
compensation rarely reflects the management responsibilities they assume, especially as their
organizations become more structured and complex. More than 75% of firms indicated that they do not
allocate specific salary premiums for those partners who perform a management function. These firms
may use different methods for owner compensation, but the underlying philosophy toward owner
compensation remains consistent. The recommended approach can be summarized as follows:

• Base salary should be objective and reasonable.

Especially in a firm with multiple owners, owner base salary is typically aligned with an external industry
benchmark. Many firms rely on specific market data to ensure that base salary amounts remain
reasonable.

• Compensate the advisor function, regardless of ownership interest.

Well-Managed Firms take a proactive stance on drawing a line dividing their roles between business
manager and financial advisor. Most of them do not pay salary premiums for those management
responsibilities above and beyond their salary as an advisor. They emphasize that owner-advisors should
receive compensation for the advisor function that is comparable to the appropriate non-owner advisor
level.
• Use a clear owner-compensation formula that improves the clarity of the firm’s financial
statements.

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Gaining a true sense of the profitability of a firm is difficult if owner compensation is purely discretionary
or is just some division of the dollars left over after paying all expenses. In such cases, the distinction
between compensation for work and reward for ownership is lost and not translated into the financial
statements. If a firm pursues a profit-sharing plan or incorporates individual incentives driven by firm
profitability, owners operating with a discretionary compensation plan may find themselves defending the
bottom-line from concerns about manipulation.

• Separation of the compensation components avoids succession and valuation distortion for the
firm.
The far-reaching power of a compensation policy that separates the rewards for advisory and management
services from ownership interests are realized when the firm prepares and executes on their succession
plan, and retiring partners wind down their roles. This allows the firm to ascertain its true profitability and
assures that the valuation of equity is accurate.

Advisor Compensation
Compensation of non-owner advisors has emerged as a key strategic issue for Well- Managed Firms, as
well as the entire industry, as firms contemplate the most effective ways to retain their client relationship
professionals. What is apparent from the data on compensation of non-owner advisors at Well-Managed
Firms is that Level 1 advisors significantly exceed their peers in other firms in all components of total
compensation.

Additional data shows that all Well- Managed Firms advisors, from Level 1 through Level 3, are among
the highest compensated professionals within the industry. Below is a table identifying the levels and
components of advisor compensation.

What does this suggest? Are Well-Managed Firms more financially successful and therefore able to
afford to pay more to their advisors; or, alternatively, do these firms pay more to attract advisors and
thereby become successful by recruiting top talent? The responses from most of these firms imply that the
relationship is sequential: hire the talent, pay the talent well and the assets will follow. An important
caveat, though, is to be reasonably assured that the addition of a professional will either immediately or in
the short term contribute to the financial success of the firm. Some indicators may include the
professional’s network of influence for prospective clients or an internal firm capacity indicator that
suggests the new professional can absorb current workload overflow.

Compensation for Advisors in Well-Managed Firms

Average Average Average Average Average
Base Commissions Bonus Distribution Total

Lead Advisor (Level 1) $93,339 $21,606 $28,458 $11,274 $154,677

Service Advisor (Level 2) $67,425 $5,556 $14,640 $0 $87,620
Support Advisor (Level 3) $64,256 $289 $15,638 $0 $80,184

Conclusion
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In many respects human capital management still challenges Well-Managed Firms. Such companies are
clearly ahead of their peers, however, in the recognition that employees should not be treated as an
expense but must be considered the most important asset of the firm. They recognize that the success of
the organization is dependent on human capital, and they place a heavy focus on recruiting, nurturing
and retaining talent. Most advisors entered the business because of their passion for financial planning.
Their ambition was to work with clients. But, as one principal describes: “then the business evolved and
now we have to be business people.” As part of this evolution principals must recruit and manage people
in order to grow their organizations. If their teams are built in a deliberate and strategic fashion, however,
they soon recognize that it can be just as rewarding, if not more so, to give their staff the same attention as
they do clients.

Additional Resources
Resources Purpose For Additional Information

The Profiles XT™ from Measure candidates’ job-related www.profilesinternational.com

Profiles International, Inc.
Kolbe A™ index
qualities to improve match of
people with work performed
Assess candidates’ natural www.kolbe.com
instincts that drive them to take
action

FPA 2006 Compensation and Benchmark compensation for a www.fpanet.org

Staffing Study, Financial wide variety of financial firm
Planning Association positions and responsibility
levels

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