Recruiting and Retaining Top Talent

Provided by Benson Botsford, LLC

john.ruggiero@clarkbensonllc.com

Table of Contents
Introduction Recruiting Identifying the Need Identifying Candidates Hiring the Right Candidate Retention Pay Competitively Align Compensation with Development Goals Make the Firm a Great Place to Work Career Path What Is a Career Path? Advisor Career Path of Well-Managed Firms Becoming a Partner Career Path for Nonprofessional Staff Business Development Owner Compensation Advisor Compensation Conclusion and Additional Resources 3 5 5 6 8 11 11 12 12 14 14 16 19 20 21 23 24 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.

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Some ways in which firms distinguish themselves follow: ‡ Ongoing recruitment of top talent. Recruiting is not an event. Firms recruit people with great motivation and talent and do not necessarily focus on technical skills alone. They put almost as much emphasis on attracting staff as they do on attracting clients. They understand the need to systematically develop their people. 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. Human capital management is a top priority of the most successful firms in the industry and. their investment in people is generating superior returns in profitability and enhanced firm value. Well-Managed Firms expressed a preference to recruit individuals with demonstrated accomplishment. These firms use an extensive and deliberate recruiting process to ensure that selected candidates become the foundation of the firm¶s future development. provide guidance and share expectations. ‡ Competitive compensation. Firms don¶t hesitate to compensate appropriately in order to attract exceptional talent and motivate current employees. Well-Managed Firms offer their employees a clear progression of increasing responsibilities. as polled by Cerulli Associates. which does not necessarily mean paying the most in absolute dollars.200 financial planning firms that custody and collectively manage over $320 billion in assets. 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. challenges and rewards. according to the 2006 Institutional RIA Benchmarking: Growth Trends Study. not only technical skills. That¶s more than twice the 9. professional satisfaction and life balance. ‡ Clear and structured career path. 3 . They look for the fit between the person and the culture as well as the fit between the job and the skills. One remaining challenge is the ability of financial planning firms to attract and retain talented staff and successfully develop the next generation of professionals. which polled 1. in turn.Introduction The success and growth of fee-based advisory firms is staggering²median growth from 2002-2005 was 24% in assets under management and over 18% in revenues. ‡ Emphasis on the complete person. And they make a conscious effort to expand networking opportunities to help identify potential candidates. whether in professional or academic careers. There are few limitations on how fast and how profitably practices can grow. 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. 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.8% compound annual growth in assets posted by major wire houses during the same period. Their underlying philosophy is to compensate in alignment with their expectations of the individual¶s professional performance.

These firms excel at communicating their vision and their plan to employees with clarity and consistency.‡ Excellent communication with employees. and capacity needs are anticipatory rather than reactionary 4 . They also develop an environment built on respect. staffing policies are well-defined. All Well-Managed Firms ensure they create a culture in which motivated individuals can flourish. ‡ Fostering a culture of opportunity and respect. with opportunity for professional as well as personal growth. They put a high priority on involving their people in all strategic initiatives as well as measuring and articulating results. ‡ A clear strategy. Well-Managed Firms also tend to have a clear.´ one principal told us. ³Good culture attracts and retains good people. People and processes are optimized. well-articulated plan for human capital that is integrated into the firm¶s overall strategy for growth.

then it is imperative that the right people are selected to help achieve these goals. skills and capabilities. Identifying the Need Most Well-Managed Firms arrived at their current recruiting methods through years of trial and error. especially for firms seeking to leap to the next level in growth. Most firms evaluate the decision to hire from a client-capacity perspective. If a firm lacks a recruiting strategy. into their value proposition to clients and prospects. is uncovering the right people to join their growing organizations. 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. such as experience and accreditation. Successful recruiting builds depth. identifying candidates and performing candidate evaluation. 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. and each addition to the organization must bring a greater degree of leverage in order to be a suitable hire. The recruiting process has three central component s: identifying the need. ‡ Monitor capacity. expected a different role than what was needed at the more entrepreneurial and independent firm. If the firm wants to grow according to measured and deliberate strategic goals. theses firms are converging toward a set of recruiting practices that minimizes the risk of being caught unprepared when confronted with unexpected turnover. then the organization is at a significant disadvantage when it seeks to hire the best people to fit its culture and business philosophy. Many firms incorporate the professional qualities of their staff. other than to help the firm fill a need with client relations. coming from a more rigid corporate environment. 5 . The firm brought on an individual without first clearly defining what they wanted the individual to do. Oftentimes. The individual. leverage. 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. Recruiting must integrate with the overall business strategy. The relationship failed because of differing expectations. All these firms acknowledge that searching for and hiring the best people has a cost. Today. At least once a year. One firm had a particularly instructive experience. and maximizes the return on investment and efficiencies for locating new talent.Recruiting The challenge for the financial services industry. they examine anticipated client growth and staff productivity to identify critical times for hiring.

Many firms maintain a presence in national and local professional organizations. allowing the firm to maintain an aggressive presence in an increasingly competitive market. This does not mean they look for the most intriguing prospects. team-oriented)? ‡ What specific areas of expertise. a recruiting strategy is not event driven. the description included characteristics the firm felt would demonstrate good potential for quickly becoming proficient with this system. Well-Managed Firms communicate with career service offices in academic institutions and advertise with finance-related departments.. ‡ Cultivate a range of traditional and nontraditional recruiting sources. self-motivated.. It is a constant process of seeking out the best potential employees and managing capacity. they wrote a very comprehensive job description. Given their focus and plans for future growth²not just replacement of current staff that might leave²this is a very appropriate and effective strategy. Firms seek the best people for the skills their business strategy requires. the firm managements uses a spectrum of candidate sources to cull the best qualified recruits. 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. From the perspective of firm management.‡ Identify the characteristics of the ideal recruit. Just as successful advisors continually network among their client base for prospects. investment analysis)? ‡ What is the general knowledge level required? ‡ What is the professional/academic experience required? ‡ What personality traits are required (e. Most of the Well-Managed Firms adhere to a single recruiting principle² always be on the lookout for the best people. insurance. Local colleges and universities also are a prime source for future recruits. It also is an effective defensive strategy in cases where an employee unexpectedly departs from the firm. such as systems. however. For example. Early in their history. Identifying Candidates ‡ Now is always the best time to recruit. ValMark Securities is an example of a WellManaged Firm successfully using interns. The ideal candidate exists only for a specific job description.g. 6 . financial planning. 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. 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. sought to fill a technical specialist position. especially if firms have internship opportunities. when a Chicago-based firm. some of these firms learned this the hard way. Instead of requiring proficiency with a particular technology system. such as the Financial Planning Associations (FPA) and the Estate Planning Council. They will hire earlier than needed for scarce skills they know they will eventually require.g.

000 bonus. Make sure the client understands up front that you will need to manage. ensure that letting them go would not damage the firm¶s relationship with the client who referred the candidate. Most Successful Recruiting Methods 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% All Other Firms Well-Managed Firms Typically. most firms employ a headhunter or recruiter when seeking a chief investment officer or business development specialist. 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. because we are getting people more like our existing people. Because those clients are aware of both the nature of the work and the culture of the firm. For instance. the more complex the job description. With positions such as paraplanners. Well-Managed Firms are apt to make more use of every method. they get a $1. the firms can usually gather better candidates while deepening client relationships. the firm¶s own employees also can be an excellent referral source. If the employee were not to work out well in the position. the more formalized the recruiting process becomes. firms are able to cast their net wider and pursue candidates from a variety of sources. If a nonowner refers a candidate for an open position. and that candidate ends up working for the firm for at least six months. Similarly.Some of the best recruits. are referred from clients.´ This chart illustrates the use among firms of a variety of recruiting methods. One firm owner explained their approach: ³We just established an internal referral program. according to the firm principals. This method helps us preserve our firm culture as well. 7 . Note that compared with other firms. train.

Well-Managed Firms. the prior work experience at the firm is an advantageous qualification. the frequently quoted author of Good to Great: ³People are not your most important asset. candidate selection for most positions is a thorough and 8 . For those with internship programs. ambition. Many firms. increasingly. But. For these firms. 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. the right personality and teach the technical skills. Often. CFP. Most Sought-After Credentials 90% 80% 70% 60% 50% Well Managed Firms 40% 30% 20% 10% 0% CFA MBA CPA BA/BS CFP/CLU/ChFC All Other Firms A related word of advice comes from a local Chicago firm: ³Tell everyone that you might have an opportunity for someone. knowledge of finance and prior work experience. are particularly on the lookout for bachelor¶s degrees. The composition of the ideal recruit may also include learning proficiency and client-service orientation. Some Well. They look for personal and professional qualities that are a sound match for their firm. however. advisors are finding that those two steps are insufficient for accurately gauging personality fit. compared with other firms. States Jim Collins. MBA and CLU credentials. the next step is candidate evaluation²probably the most critical and cost-effective component in a successful human capital strategy. Hire the right mentality. and be willing to train. a person¶s past success in other industries or general professional connections are more important than familiarity with financial advisory practices.‡ Be innovative and move beyond traditional recruiting practices. The right people are. enthusiasm and passion for service. CPA.Managed Firms do not weigh previous industry experience as heavily as might be expected.´ A resume review and an interview are standard recruiting procedure. have either expanded or departed from some of the common practices for hiring in an advisory practice. There are some recruiting requirements for the advisory industry that are usually indispensable: a bachelor¶s degree.´ Hiring the Right Candidate Once a firm identifies a pool of potential candidates.

There are several common candidate-selection procedures used by Well-Managed Firms: ‡ Candidates should meet the team. Testing may be done during this interview such as: ° Skills testing through basic knowledge exam and/or case study ° Personality testing ° Psychometric testing Recommendation: Consider inviting candidate to firm social event as a way to see how they interact with current staff Make a hiring decision. 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. Group interviews with staff members. ° Goal is to see if candidate will be a good match with the current staffing mix Initial phone screening of potential candidates. peer/association networks..unhurried process because they hire for a career path as much as for the specific available position. Using these processes enables the Well.). Applying a range of selection techniques and methods up front drastically reduces employee turnover and its associated economic costs. Firm tries to gain an in-depth understanding of the candidate¶s qualifications and background. Potential candidate resumes are gathered. 9 . they have found it more efficient and valuable for a candidate to meet with most professional and staff members as well. referrals. Candidates are engaged in a series of interviews with principals. Prior work experience 2. Well-Managed Firms take a holistic approach to candidate selection.Managed Firms to evaluate past professional experience and the potential for future success. 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. Recruiting Timeline Candidate First Month Firm notifies targeted recruiting sources (e. 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. Second round of in-person interviews. First to interview candidate is the firm owner and/or the Director of Human Resources. Educational background² degrees/designations 3. Schedule time for first round of inperson interviews. online job sources. senior professionals and other staff members to enhance their familiarity with the firm and vice versa. This entails a review on what base salary will be offered and which employment contracts (i. Candidate to meet with potential supervisor. Examples of job successes Third Month Beginning of third month a firm should have narrowed the field of candidates down to 2 to 3 highly qualified potentials. Interview questions will be similar to first round. Third round of in-person interviews.g. While principals typically make the final hiring decision. non-compete agreement) may be required.e. etc. Employee Second Month First round of in-person interviews. Interview questions will cover areas such as: 1.

While 67% of Well-Managed Firms employ some type of candidate testing. An interview should test those traits as much as it does any technical proficiency. Good communication skills and being presentable are just as important as the technical skills. these tools continue to add value to the firm as indicators for managing and coaching. Unanimously. which gauges a candidates¶ instinctive method of operation. just 57% of other firms do. speak at the client¶s level of understanding and keep the client at ease. This kind of assessment provides an indicator of how the individual will perform in that position. be a good communicator. If the individual is hired. 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. 10 . The candidate gets to ask questions about your culture. More so than other firms. Because the advisory business is built on client relationships. Several firms shared thoughts on conducting effective interviews. It¶s a very one-on-one type practice. ‡ Define the characteristics of a good interview. particularly the Kolbe AŒ Index test. Many firms also use a financial planning case study to measure a candidate¶s fluency in client relations as well as technical proficiency. ‡ Employ a series of tests to measure the entire individual and evaluate skills. Kolbe provides another family of tools frequently mentioned by firms. It also allows your team to weigh in and buy in on the hiring decision. firms pay keen attention to how candidates communicate and relate to unconventional interview questions. which compares an individual¶s thinking style.Many principals have found this technique accomplishes two purposes at once: If you want to pursue a candidate. 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. and a candidate must appear professional. One popular tool is The Profile XTŒ. behavioral characteristics and occupational interests against a position-specific job pattern. Ultimately. you should allow them to interview your firm²they get to interview every person in the organization and vice versa. this is a communications business.

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. They recognize the need to attract exceptional talent and motivate current employees with competitive compensation. Firms discuss these topics at annual board meetings and retreats. Pay Competitively The compensation philosophy of Well-Managed Firms. Well-Managed Firms. spend 16% more on employee benefits than other firms. focuses on paying competitively within the industry. Benefits per Employee $6. Key tactics include paying competitively. more so than that of other firms. with many aiming toward the upper quartile of benchmarks.654 $7. also tend to be more generous with employee benefits. many firms acknowledge that money is not always the answer or the biggest motivator. To ensure that staff compensation is adequate. a comprehensive source of industry benchmarking information. and their employees are more likely to be offered retirement benefits through a 401(k) program. aligning compensation with business goals and making the firm a great place to work.Retention Employee retention is critical to a firm¶s success because high turnover is costly and disruptive. they also must develop ways to retain top talent. on average. in relation to other firms.735 Well-Managed Firms All Other Firms 11 . Well-Managed Firms. many principals refer to The Financial Planning Association¶s biannual Compensation and Staffing Study. On top of a disciplined recruiting practice. WellManaged Firms recognize that the success of their organizations depends on human capital. treating them with the same diligence as issues of profitability and growth.

these firms are conscious of aligning compensation structure with development goals that encourage retention and realize a greater return on investment for the firm with regard to staff. employees are not treated as expenses. Well-Managed Firms.´ Staff performance evaluations are a critical tool for tying compensation to career development. 12 . but considered as one of the most important firm assets. but to get the right people on the bus in the first place and to keep them there. compared with others. Employee salary reviews are highly institutionalized at the Well-Managed Firms. Consistent with this view.Align Compensation with Development Goals 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Percentage of Firms Who Offer Benefits Within the Well-Managed Firms. Jim Collins in Good to Great frames it this way: ³The purpose of a compensation system should not be to get the right behaviors from the wrong people. The majority of firms interviewed agreed that regular performance reviews are a crucial component in maintaining high employee retention. 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. are more likely to conduct performance evaluations and tend to conduct them across a wider breadth of personnel categories.

but they gain extra productivity in terms of better office communication and less time lost from people leaving the office.Percent of Firms Conducting Performance Evaluation by Staff Type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Well-Managed Firms All Other Firms 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. Well-Managed Firms employ several tactics. then you need to model it with your own employees. They emphasize that a team-oriented environment with open communication fosters better working relationships. One firm uses their weekly team meetings to encourage and praise their staff members. the approach is to take care of the people who will take care of their clients who will make money for the firm. If one of your goals as planners is helping clients live a better life. At some firms. This leads to informal staff meetings every day at lunch time. It costs them more money. Finally. Employees are much more productive if there is a healthy life balance. in addition to providing learning opportunities. To do this. 13 . In some firms. Well-Managed Firms want their employees to be well-rounded and happy in their personal lives. Most firms schedule company-wide meetings to ensure that there are regular opportunities to address any concerns and provide positive feedback. lunch is brought in every day and provided free to employees. this means paying attention to a host of little things that contribute to making these firms great places to work. They also employ team recognition statements as tools for positive reinforcement. But perhaps most importantly. They call it the ³circle of life´. This includes developing an environment of respect and professionalism as well as personal growth.

A career path is not a legal contract. A career path presents a goal-driven plan for the entire tenure of an employee inside the firm. This may be practical when the firm does not have employees that are close to top levels. the clearer it is. both job descriptions and defined performance expectations are an absolutely necessary part of the career path). 14 . leaving the top of the ladder somewhat undefined. Career paths are critical for retention. The responsibilities of each position and job level. It works through developing consistent and shared expectations between management/ownership and staff. As with any agreement. Both reasons outranked ³do not see their pay as fair. A career path takes an employee from one job level to another and exposes the individual to new challenges. The career path has to be clearly defined in order to be effective. Employees looking to leave their firms cited ³do not see work as challenging´ and ³supervisor not concerned with their development´ among the leading factors in seeking other jobs. 2006 1. b. The path should be structured to reflect what an employee can realistically strive for and possibly achieve. promotes his or her status in the firm and can correspondingly increase their compensation.´ For a firm to be able to say that it offers a career path to its employees. however. including some of the Well-Managed Firms. Compared with others. have only defined a portion of the career path.e. it should satisfy the following criteria: Percentage of Firms with Career Track or Training Programs 60% 50% 40% 30% 20% 10% 0% Career Track Formal Training Well Managed Firms All Other Firms FPA Staff Satisfaction Survey. The positions or levels within a position that an employee can pursue during their tenure in the firm.Career Path What Is a Career Path? The term ³career path´ refers to a progression of increasing skills.. If they are going to be consistently motivated by that goal. 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. a good career path articulates several points of understanding: a. Many firms. but ultimately this may affect motivation and culture. they need to see it²and the steps to get there²more clearly. Clarity. 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. the less chance that either side will feel that the agreement has been breached. but rather a statement of philosophy and values that creates a professionally (if not legally) binding mutual agreement. Moss Adams LLP. At minimum. responsibilities and contributions. the skills required and the experience necessary to be successful in that position (i.

From a communication perspective. Required skills or accomplishments II. The firm needs to present clearly: I. Employees need to understand and evaluate how attractive the destination is. the counselor is a senior professional or senior administration professional who is able to share both experiential and career advice. Which side of this fence an advisory firm stands on depends on their firm philosophy. b. the criteria for advancement should be outlined. Personal accountability: Ideally. d. chances are they will walk away with different interpretations. That philosophy plays a central role in the career path structure. For instance. many Well-Managed Firms have established the attainment of a CFP or CLU designations as a requisite for upward career mobility. They will benefit from understanding the nonfinancial rewards. The milestones that a person has to achieve in order to be considered for the next level. They need to have a general understanding of realistic ranges of income they are striving for and the compensation drivers of each level. Formal counseling meetings should be scheduled quarterly. Coaching and Counseling: Employees should know where they stand and be able to work with someone on how to move forward. though. depending on its values. Priorities: In the end. and the criteria for that growth should be both measurable and easy to understand. etc. If both the employer and the employee do not have a copy of the plan. input into decisions. as well as recruiting. the career development plan should consider several factors: a. but they should be measurable and tangible in order to allow employees to track their progress. The answer differs for each firm. compensation and equity participation planning. These conversations should be opportunities for honest dialogue about the challenges and successes of the individual. recognition outside the firm. etc. some firms feel that the firm should be creating opportunities and presenting them to those who are ready to take advantage of them. The reward for achieving the next level²both financially and otherwise. Unless measurable criteria are part of the path. Career counseling allows employees to understand where they are in their progression. Typically. Many WellManaged Firms are adamant that employees have to create their own opportunities for advancement (meaning attract new clients. The career path has to be communicated in a development plan to employees in order to be effective. On the other hand.c. philosophy and strategy. every employee should understand that they have the ultimate responsibility to develop their own careers. such as greater exposure to clients. though many Well-Managed Firms encourage an ongoing informal relationship. 2. Communication. firms are inconsistent in terms of who should be creating opportunities²the employee or the firm.) and that the role of the firm is to provide the resources for employees to succeed in the pursuit of their own goals. Skills that may be considered substitutes for certain required skills 15 . develop new services. Practically. The outcome should include some specific recommendations about how to address areas for improvement and how to continue to build on current success. Job expectations must be mutually understood by both the individual staff member and the firm. Most important achievements III. Milestones should not be the only criteria for advancement. The career path is about professional growth. c. employees can feel that they are tied to the subjective evaluations of their superiors. The responsibility of the firm is to provide an environment where motivated and talented people can thrive.

however. Consistency does not mean rigidity. Consistency. building on each other throughout an individual¶s career path. What distinguishes successful financial firms. As the firm Principal states. After approximately five to seven years in the program. but sponsor those programs when staff members take the time to plot out an educational plan and submit it to the firm for review. including operations. some skills developments take priority. Similarly. a career path has to be consistently enforced and supported. One firm has created a proprietary training program for their staff called the Planning Career Program. the career path implies progression in compensation. A career path implies advancement. Further advancement requires a CFP or CLU and enrollment in a master¶s degree program in tax. the financial solutions available. Some firms do not proactively encourage advanced degrees such as an MBA. 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. Once developed. Recognition of both knowledge and experience. and the practical application of theory to create real life solutions for clients. 16 . Further. the skill sets do not have a ³finish line´²the advisor should pursue incremental improvement and build knowledge throughout his or her career. planning and marketing. enforcing equitable compensation is part of maintaining credibility for all positions along the same path. these professionals earn the position of client relationship managers. (The issue of business development will be discussed in detail in the next section. While all are necessary. These skill sets are cumulative. The milestones in the career path tend to correspond with the mastery of these skills: 1. The program places junior professionals in various jobs around the firm. To be effective. finance or business. or creating new levels to accommodate certain employees are common mistakes that undermine credibility of a career path.´ 4. Knowledge and experience may seem like obvious factors in structuring a career path. 5. ³We not only expect on-the-job training but real education as well. Furthermore. 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. such as Well-Managed Firms. and that progression needs to be aligned with the economics of the firm overall. Well-Managed Firms have found success by framing the career path but encouraging individuals to explore unique ways to fulfill position expectations. 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. Technical skills. Promoting people who do not meet the criteria. Advisors become technically proficient in theoretical knowledge of personal finance. Real progression. In a dynamic industry such as financial services. the career advancement has to be real. There is no point in creating artificial levels of responsibility just to give people more chances for promotion. and employees generally see through these tactics. The incremental reward will probably not be much appreciated. the tools of financial planning and investment advice. The right metrics often determine the suitability of a decision to promote an employee. client service.) 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. 6.For example. hiring people out of the career path. however. is in how they measure knowledge and experience.

but typically. Responsibilities at each level commonly found within the Well-Managed Firms are summarized below: ‡ Support advisors (Level 3). ‡ Lead advisor (Level 1). 5. Advisors need to master the ability to organize and use resources. Service advisors¶ main responsibilities are to deliver advice and services to clients. Not all advisors become CEOs and COOs. Given the importance of retention. They generate $151. and the focus of their position is relationship management. Nonetheless. The average support advisor has eight years of experience (four years of tenure) and is responsible in a secondary role for 45 clients. The evolution of these five skill sets can intuitively correlate with five steps in the career path. ‡ Service advisors (Level 2). Of all senior professionals at Well-Managed Firms. Advisors become experts at managing existing relationships and defining and executing the client delivery process. 17 . principals and top non-owner advisors) management functions typically average 20% of their time. This fifth skill.000 working with owner/lead advisors or lead advisors. 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). develop and train staff.2.000 in revenue from their primary relationships. manages 68 relationships as a primary advisor and 52 as a secondary advisor (working with an owner/lead advisor). The delivery of advice to clients inside Well-Managed Firms is rarely a one-on-one process.. Over time.Managed Firm has 15 years of experience (six years of tenure with the firm). Project management skills. the focus moves from technical skills to project management to relationships and finally to firm management and business development. the subject of the next section.000 in revenue from primary relationships and also contribute an additional $643. The delivery is complex and requires the involvement of multiple people. the business development function is a responsibility of most top positions. Lead advisors are senior non-owner professionals primarily responsible for managing existing client relationships. and manage profitability. Responsibilities for acquiring new client relationships usually are assigned at the top level of the career path. presents a dilemma to many firms.e. 4. The typical lead advisor at a Well. some senior advisors develop the skills to tackle strategic issues for the firm. With each successive level. but regardless. While they have responsibility for formulating recommendations. This is a role that is played typically by the principals and some of the senior non-owner advisors. do so under the supervision of an owner/ lead advisor or lead advisor. take responsibility for efficient solution and supervise the work of others. among the senior professional staff (i. their advice is usually reviewed and/or approved by another more experienced professional. Business development. 3. Support advisors perform analysis and tasks assigned to them by service advisors and lead advisors. contributing toward $433.000 in revenue. Each generates $531. Relationship skills. 91% of the principals are involved in this role and 69% of the senior non-owner professionals have some business development responsibilities. Firm management. Lead advisors work with no supervision other than general firm policy and compliance procedures and are responsible for client retention and satisfaction. They have no responsibility for recommendations or advice and relatively little client interaction. there are Well-Managed Firms that are inclined to promote people to the top level of the career path without business development responsibilities.

and it also is not necessarily tied to business development. Advisor Career Path within Well Managed Firms Progression of skills and responsibilities Level 3 Technical Skills Level 2 Level 1 Principal Project Management Relationship Management Firm Management Business Development Milestones Degrees and destinations Years of experience Clients served as primary advisor Clients served as secondary advisor Revenue from primary Revenue from secondary Total compensation 49% are CFP/CLUs 61% are CFP/CLUs 17% are CPAs 63% are CFP/CLUs 25% are CPAs 80% are CFP/CLUs 32% are CPAs 8 45 $433.184 10 25 39 $151.‡ Owner/lead advisor.577 18 104 $1.457 $87.947 $643.000 in revenue. it will be difficult to implement four levels of responsibility.802 $154. however. as do the performance expectations and desired outcomes. 18 .488 $346.117 $80. ‡ 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. The typical owner/lead advisor at a Well-Managed Firm has 18 years of experience. 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. however. manages 104 client relationships and generates $1.957 $530.705 These levels summarize the most common responsibilities inside financial advisory firms and define the milestones that typically differentiate each level. 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. Promotions must lead to increased reward and responsibility.275. The key responsibility for owner/lead advisors. ‡ What is the owner¶s job description? In most firms the responsibilities of the owners shift toward management and business development. is typically the development of new relationships.276. However. The job that an owner fills within the business needs to be well-defined. Ownership typically coincides with a shift of responsibilities into business development and firm management that separates the owners from the most senior professionals. principals should review their own organizational structures before choosing how many levels they need in the advisory career path. Ownership itself is not necessarily part of the career path.620 15 68 52 $531.

and stock appreciation rights. 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. This is lower than the 10% of all other fee-based advisory firms that offer employees ownership interest in addition to cash compensation. Typically. In most professional services industries (accountants. only 4% of Well-Managed Firms offer ownership as part of the career path. Looking across the broader professional services industry. As relatively young organizations. many larger accounting. lawyers. ‡ What is the concern around expanding ownership. this will be a necessary step in the long term in the absence of a sale to an external buyer. staff development and positive impact on the firm¶s culture. These alternatives include stock options. On the other hand. 19 . ‡ Who develops business and how? The more the firm relies on individuals to create and capture opportunities. Ownership²among the Well. While firms can design ways around this.Managed Firms who offer it²is reserved for professional and dedicated management staff. At present. client relationships. internal management. entrepreneurial advisors are drawn to owning the outcome of their efforts. such as loss of control. consulting and law firms offer equity in some form to their top professionals. The question of whether firms can be successful without expanding ownership is a pressing issue. etc. human capital strategies and exit strategies. they may prefer lower risk/reward systems. independent types of people who eventually develop into great business developers and marketers will have to strongly consider offering ownership. can be addressed through designing ownership plans that make sure that the founders continue to have full control of the business. and can it be addressed through good design? Some of the concerns.) the lure of ownership is significant in attracting new talent and retaining the best people. Some Well-Managed Firms are proactively searching for their own alternative to direct equity participation. In fact. these Well-Managed Firms are looking to define both their comfort level with expanding ownership and the preferred method for introducing new owners. It should be a privilege in recognition of outstanding service and contribution to the firm²in terms of revenue. phantom stock or synthetic equity. These are higher risk/ higher reward individuals.Becoming a Partner One pressing issue for the Well-Managed Firms is defining the final step of the career path for their most senior professionals. Well-Managed Firms reiterate that equity participation should not be positioned as a gift or a right. 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. the more likely it is that these individuals expect an equity opportunity. 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. The answer is dependent upon each firm¶s specific business. Over and over.

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. and administrative departments tend to have less aggressive career paths. who are in roles that don¶t naturally fit into a well-defined career path. performed at excellence. It sums up the recognition that promotion is not the only route toward respect and prestige within a firm. From the firm¶s perspective. such as portfolio administrators. Break All the Rules. In this light. Well-Managed Firms may also offer these employees variety in the form of a rotation of job responsibilities.´ This is a term coined by Marcus Buckingham and Curt Coffman in their book. 20 . this practice also builds a level of safety by providing backup staff for certain functions. First. career paths usually are segmented departmentally. is a respected profession and excellent performance can be rewarded without necessarily promoting employees out of their current role. Any role. In addition to using compensation as an incentive to excel within an existing role. The response of many firms to this issue is to ³create heroes in every role. A challenge for these firms is how to retain key administrative staff. Well-Managed Firms emphasize perks such as flex time.Career Path for Nonprofessional Staff Well-Managed Firms recognize that handling career aspirations for nonprofessional staff is critical if they want quality talent to remain with their firm. new office furniture or technology enhancements as well as formal and informal recognition programs. At these firms.

2006 21 . The second-largest source was referrals from professionals outside the organization (CPAs. non-owners at Well-Managed Firms brought in only 2% of all new clients in 2006.5 million in new assets and median incremental revenue of $349. 27% of owners said they planned on retiring within the next 10 years. Well-Managed Firms need to continue developing new client business. 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. 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 2006. Moss Adams LLP. On average. However. which brought in 16% of all new clients. Several of the Well-Managed Firms do not yet have a full-time business development specialist. In addition to hiring.1 For Well-Managed Firms. In 2004. the business development function involves sales and marketing to attract new clients into the firm. it exposes some shortcomings that should be addressed. As successful as they have been in expanding their reputations and growing their client bases and assets. the challenge is even more pressing. 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. particularly in light of a rapidly aging ownership base. 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. As a result. Well-Managed Firms are taking other active steps to solidify their business development capability: 1 FPA Financial Performance Study of Financial Advisory Practices. If it doesn¶t add new business developers. other professionals and institutional referral sources By itself.000. 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. where firm age averages 18 years compared with 13 years for other advisory firms. Well-Managed Firms increased their client base about 11 % in gross terms through acquisition of new clients. etc.). The third was active business development done by principals from other sources. Referrals from existing clients were the primary source of clients for these firms and accounted for 45% of all new clients these firms developed. which accounted for 24%. 26% of the Well-Managed Firms sought to add a specialized business developer or rainmaker to their staff in 2005.Business Development To continue growing. these firms recognize they need to build more structure into their strategies of business development. the firm may experience slower growth in the future and be vulnerable after the founding principals retire. translating into $41. Typically. lawyers. The typical expectations for such a position were to develop 30 new client relationships.

³A junior staffer is along on every prospecting call before they are allowed do it on their own. This stage should be developed with Level 2 Advisors as well.‡ Introducing the team approach to clients early in the process. ‡ Using a marketing director. recommends ‡ Providing early training. 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. They will get us in articles. A good business developer will gradually acquire and enhance the following skills: 1. Firms introduce the team approach early on with clients to avoid transition concerns if business development is done through a dedicated rainmaker. 22 . Convince the client of the firm¶s as well as the advisor¶s capability. Mentoring is also the best way to enhance an individual¶s experience. 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. According to a firm principal. You must continually grow employees to fuel passion and career desires. This is often a defining factor for new owner admission. 4. A mentoring program is the most commonly used training tool as it provides a firsthand look at the skills needed for business development. the function of their marketing director is to ³create interest and opportunity. 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. 3. quotes from the media and network with different community organizations and associations just to keep our name out there. Advisors with business development responsibilities require early training in order to develop the skills and experience to be successful at their role. Some marketing directors also oversee development of individual marketing plans for each advisor at the firm.. 5. firms may want to incorporate business development skills into the career path.´ For training. credibility and ability to understand and service needs. Recognize needs and opportunities in an existing client relationship and be able to recommend new solutions. 2. Convert a referral into a new relationship by introducing the client to the firm. Proactively seek referrals from existing clients. This development stage typically occurs when advisors reach Level 1. This stage should be actively encouraged and promoted when an individual reaches Level 2 Advisor. Structure and negotiate referral agreements and represent the firm in front of possible institutional referral sources²a function typically reserved for the most senior principals.´ explains a firm principal.

The recommended approach can be summarized as follows: ‡ Base salary should be objective and reasonable. regardless of ownership interest. No firm determines owner compensation strictly based on prior year revenue contribution (draw).Following are suggested metrics for development around the first four steps. Especially in a firm with multiple owners. either against the general marketplace or against individual revenue performance within the firm. owner base salary is typically aligned with an external industry benchmark. Most of them do not pay salary premiums for those management responsibilities above and beyond their salary as an advisor. especially as their organizations become more structured and complex. ‡ Compensate the advisor function. Because the Well-Managed Firms¶ principals remain in a predominantly client service role.000 new revenue Level 2 New Assets New Services Example Budgets $2MM new assets 20 new referrals Owner Compensation The manner in which owner compensation is structured bears significant implications for the firm¶s economic agility. More so than other firms. but the underlying philosophy toward owner compensation remains consistent. Many firms rely on specific market data to ensure that base salary amounts remain reasonable. 23 . These firms may use different methods for owner compensation. Well-Managed Firms take a proactive stance on drawing a line dividing their roles between business manager and financial advisor. When categorizing the different components of owner compensation. approximately 60% of Well-Managed Firms apply an objective metric to determine base salary. 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. Ten percent elect to create salary equivalence among their partners. More than 75% of firms indicated that they do not allocate specific salary premiums for those partners who perform a management function. it resonates as a statement on the opportunity for partnership and impacts the financial affordability of new partner additions. their compensation rarely reflects the management responsibilities they assume. Furthermore. They emphasize that owner-advisors should receive compensation for the advisor function that is comparable to the appropriate non-owner advisor level.000 new revenue 15 new clients Develop Leads Principal New leads New clients New assets New revenue $30MM new assets $300. Business Development Skills Cross Sell Level Metric Obtain Referrals Level 2 New Referrals Close Sales Level 1 New clients Percent conversion New revenue $250.

339 $67. ‡ Separation of the compensation components avoids succession and valuation distortion for the firm.677 $87. 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. the distinction between compensation for work and reward for ownership is lost and not translated into the financial statements. An important caveat. In such cases. Compensation for Advisors in Well-Managed Firms Average Base Lead Advisor (Level 1) Service Advisor (Level 2) Support Advisor (Level 3) $93. What does this suggest? Are Well-Managed Firms more financially successful and therefore able to afford to pay more to their advisors. and retiring partners wind down their roles. 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. owners operating with a discretionary compensation plan may find themselves defending the bottom-line from concerns about manipulation. though.638 Average Distribution $11. This allows the firm to ascertain its true profitability and assures that the valuation of equity is accurate.640 $15.425 $64. 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. 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. pay the talent well and the assets will follow. as firms contemplate the most effective ways to retain their client relationship professionals.‡ Use a clear owner-compensation formula that improves the clarity of the firm¶s financial statements. alternatively.458 $14.556 $289 Average Bonus $28. from Level 1 through Level 3.184 24 .274 $0 $0 Average Total $154. Advisor Compensation Compensation of non-owner advisors has emerged as a key strategic issue for Well. or. as well as the entire industry. If a firm pursues a profit-sharing plan or incorporates individual incentives driven by firm profitability.620 $80. 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. are among the highest compensated professionals within the industry.Managed Firms.606 $5.Managed Firms advisors.256 Average Commissions $21. Below is a table identifying the levels and components of advisor compensation. 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. Additional data shows that all Well.

com FPA 2006 Compensation and Staffing Study.kolbe. But. they soon recognize that it can be just as rewarding. however. Their ambition was to work with clients.´ As part of this evolution principals must recruit and manage people in order to grow their organizations. in the recognition that employees should not be treated as an expense but must be considered the most important asset of the firm. Kolbe AŒ index Purpose Measure candidates¶ job-related qualities to improve match of people with work performed Assess candidates¶ natural instincts that drive them to take action Benchmark compensation for a wide variety of financial firm positions and responsibility levels For Additional Information www. They recognize that the success of the organization is dependent on human capital. Financial Planning Association www. Such companies are clearly ahead of their peers. Inc. to give their staff the same attention as they do clients.fpanet. if not more so. If their teams are built in a deliberate and strategic fashion.Conclusion In many respects human capital management still challenges Well-Managed Firms.com www.profilesinternational. Most advisors entered the business because of their passion for financial planning.org 25 . nurturing and retaining talent. and they place a heavy focus on recruiting. however. Additional Resources Resources The Profiles XTŒ from Profiles International. as one principal describes: ³then the business evolved and now we have to be business people.

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