Holding this down market by its proverbial tail is an important part of the evolution of the business of financial planning. Consider the circumstances of recent years. Bullish markets and the onset of the baby boomer generation have fueled practice growth across every size and segment of firm. This growth has, in turn, fueled the hiring of more staff and advisors which—given that the average advisor does not excel in the area of human capital—has created new challenges.
These trends are being experienced by firms on the forefront of practice management, so they may not have yet trickled down to, nor been recognized by, the collective body of advisors. I suspect you will find some of these trends in line with what you're experiencing. If not, be on the lookout. They are coming to an advisor near you.
There is little doubt that current and anticipated growth, the challenges of managing firms and related human capital dynamics will lead us further into uncharted waters. Our goal, then, is to ensure we have as clear a picture of the horizon as possible, as well as the navigational tools to help us stay on course.
The problem is that the people who may soon be running many firms lack their founders' entrepreneurial knack for finding new business. As baby boomer planners prepare to retire and seek to enhance the value of their firms before selling, perhaps the most important tool is the one that has been long overlooked: new compensation structures that specifically motivate employees to perform in the areas of finding, developing and nurturing new or expanded business. The idea is to stay away from the eat-what-you kill mentality and craft new structures that align compensation with individual performance in various advisor roles, including all forms of rainmaking.
In attempting to do so, planning firms indeed have a hissing cat by the tail, for this is no easy task. It is one that involves precisely defining and/or redefining roles and assigning new levels of accountability that determine advisors' income. Only after equipping future firm owners to develop new business can today's owners be assured of their firm's value at sale and be confident that what they built will outlive them.
Boomer Movement
Since many advisors are also baby boomers, everyone with a voice has noted that succession planning is essential for the continuity of their practices. But most of these advisors are not ready to retire, and still others plan to die with their boots on. Thus, these advisors have not been quite as concerned about succession planning as the rest of us. However, I've noticed an interesting development behind the scenes in recent years. There is a growing lifestyle movement among the advisor population. They've worked hard and feel it's time that they began to live a bit more and work a bit less. But they are not ready to retire or remove themselves from their practices.
This evolving movement is creating increased demand for hires to support mature advisors as they move toward a lifestyle practice model. The founder generation of advisors who now run successful firms are self driven and self made. Most began their careers with an encouragement in the form of: "Here's the phone book; now make it happen." And make it happen they did. These advisors are entrepreneurial spirits who forged their own way while, at the same time, formed an industry.
Not the Same
There's just one problem: The advisors following in their footsteps have grown up in a different environment and time. These individuals have professional degrees and designations, and expect to join a service firm, not a sales force. They expect compensation to be robust, yet not at risk. And they expect it to be determined in ways beyond the generation of new business. They want career advancement tracks, standards of practice and partnership equity over time.
The risk-reward relationship is fundamentally different between founder advisors and those who follow. It seems that two groups of advisors have emerged: the entrepreneur advisor and the employee advisor. Founders, who are entrepreneur advisors, tend to believe they are hiring advisors much like themselves. They become frustrated when their hires focus on relationship management at the expense of rainmaking. Founders don't understand working this way because they are not wired this way.
