COVER STORY in a new person with responsibilities and experience equivalent to those of people you ’ ve already got in house , make sure they are paid the same . There is nothing worse for a company ’ s culture than a rumor mill that suggests you don ’ t take care of those most loyal to your organization .
People Are Your Greatest Investment
The compensation question gets foggier if a younger advisor hasn ’ t improved their skills or taken on more responsibility . That ’ s the owner ’ s fault , but also the fault of younger advisors who haven ’ t challenged themselves .
Firms often adopt the culture of a recreational soccer team and focus on comfort rather than development . Instead of helping their employees develop their skills or giving them new jobs , such as leading a client relationship or creating new ones , advisory firms frequently say to their employees : “ Do as much as you feel comfortable doing .”
This is a lazy approach that assumes people will just observe and learn , and it makes everyone else resentful if someone isn ’ t doing enough . If you want a growth plan for younger advisors , you have to actively train them to manage relationships , communicate well , and achieve technical excellence . It ’ s not enough for them to pass the CFP test . They must know how to talk to clients at different sophistication levels , know how to comfort clients through tragedy and use stories to depict complex concepts ( such as why it ’ s vital to have an estate plan align with a cash-flow plan ). As advisory firms grow , specialize and centralize , an advisor ’ s communication skills are going to matter as much or more than technical skills .
If you don ’ t train your team and leave them to their own devices , it may come back to bite you in the bum . Have you had a team member come to you after two years frustrated that they aren ’ t moving fast enough in their career ? If so , did you blame them for not “ taking initiative ” or did you look in the mirror and ask yourself , “ Did I train and develop with intention ?” Leadership is a two-way street , and if you don ’ t give time and attention to your people , they ’ ll dump you .
In some firms it ’ s even common to hire less ambitious people , the attitude being , “ We won ’ t have to replace them when they get promoted .” This is like drafting the worst quarterback because “ they won ’ t feel bad about being on the bench .” It ’ s the approach of a recreational team : They might be fun to play for , but every year you lose some of your best players , who go on to more competitive organizations where they can be challenged , develop and win some games .
If you want to keep the best players , you ’ ll need to invest in their futures through training and development and give them opportunities to grow .
The Promise Of Partnership
Most professional services firms elevate their best performers to partner level , making them co-owners , and that ’ s a powerful way to keep them . After all , it gives them a chance to benefit from the wealth and income they ’ ve helped create . When they actually hold capital in the firm , it ’ s more difficult to leave , even when you don ’ t consider the restrictive provisions of their partnership agreements .
But turning good employees into co-owners has become more difficult in the last five years or so as so many firms turn their ownership over to institutional investors . Advisors are no longer likely to become the controlling owners in their firms . The institutions are very much aware of this challenge and are working to create synthetic equity . But there is a difference between owning a home and buying shares in a real-estate investment company .
The institutional investors might even be treating their advisors well . ( No one is spending as much money on training , development , compensation and support for next-gen professionals as some of the big institutional owners .) But the advisors might feel like they ’ re living in a condo with too many other people , not living in a single-family home with a yard and tree . Sure , it might be a really nice condo on Boston Common , but it ’ s still just a small sliver of the power and wealth . Yet it might be the only way they can participate in the future , given the increasing worth of firms , which are otherwise getting too expensive for them to buy into , and the sheer number of people involved .
That means no one will ever again have the control and choices that the founders had , unless they are willing to be founders themselves .
We should be direct and open with our successor advisors about all this — that they ’ ll have a successful career , good income and perhaps some equity appreciation , but it will be much more structured and less risky than the careers the founders had , and likely won ’ t lead them to the same dramatic changes in wealth . The lofty prices paid for RIAs by private equity firms during the pandemic may prove to be a high-water mark .
It might seem scary to say those words out loud to your employees : “ Your career will be less risky , better supported , and you will do more and achieve more than we did , but you may not make as much and have as much control as we did .”
Some of them will . But their achievement will need to be more extraordinary if it ’ s going to take them to the same levels of success the industry ’ s founders had .
STACEY MCKINNON is a leader and partner with Morton Wealth , a
$ 2.5 billion RIA in Calabasas , Calif ., and coach at the G2 Leadership Institute . PHILIP PALAVEEV is the founder of the G2 Leadership Institute , a twoyear leadership and management program that trains and develops the next generation of leaders of advisory firms .
NOVEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 37