As much as we believe in the relevance of compensation research, our own experience has led us to the conclusion that compensation is but one component of successful human capital programs at financial advisory firms. As such, we are looking to address the myriad challenges and opportunities advisors face today as they hire, manage, compensate and advance their team members.

The reality is that many firms add staff or advisors to solve problems or capitalize on opportunities. However, without a sound human capital program in place, adding team members may solve one set of problems while creating entirely new ones.

With this in mind, we focused on studying each area of human capital to provide insight into the best practices that advisory firms can use to improve their investment in human capital (see Quantuvis Best Practices Study Series Part 3: Human Capital Findings Report). We discovered there are eight key tenets of a human capital program, each of which is reviewed in detail in the Findings Report:

* Firm vision and goals

* Organizational model

* Job descriptions

* Career ladders

* Firm compensation plan

* New hire process

* On-boarding and training

programs

* Performance reviews

Throughout this research, we look at the performance of top-quartile advisors, or 1QAs. These are the top 25% of financial advisors based on total owner income, measured by all owner job compensation plus all ownership returns. What we learned is that this group of advisors outperforms its peers by a margin of 10% to 20% on average when it comes to implementing best practices for human capital.

It is true, of course, that these differences aren't huge. But when they are added together, we see that 1QAs deliver incrementally higher investment yields and exponentially better performance. For example:

* 1QAs achieve five times greater total owner income, six times greater revenue and seven times greater base profit than their non-1QA counterparts.

* 1QAs demonstrate greater performance across every performance metric related to a firm's human assets (see "Human Capital Pays Off," page 86).

EVALUATING COSTS AND RETURNS

If 1QAs outperform their non-1QA peers in revenues, profits and key performance metrics, these gains can be attributed, at least in part, to better leveraging of a firm's human capital. With larger and better deployed teams, 1QAs create, sustain and scale growth by efficiently leveraging their time on revenue-producing activities. Key findings show that 1QAs:

* Have a higher headcount, which better leverages advisor time;

* Hire additional advisors to support owners and drive the firm's revenue growth;

* Are willing to invest in additional staff and higher compensation; and

* Focus on hiring more experienced and licensed staff members.

In addition, 1QAs more actively employ the tenets of a human capital program, helping to contribute to their 1QA performance. Given our work consulting with these top firms, our experience and the data suggest that even small, incremental improvements in harnessing human capital can yield extraordinary results.

INVESTING IN THE TEAM

1QAs tend to focus more time, energy and capital on firm staffing, particularly as it relates to hiring and compensation. In addition, these top-performing firms are making investments in human capital programs to more effectively manage teams and firm performance:

* 85% of 1QAs have established job descriptions for team members, compared with 67% of non-1QAs.

* 1QAs are more likely to review job descriptions as part of the ongoing process of managing people, with 72% of 1QAs reviewing job descriptions outside of hiring and promoting, compared with only 63% for their non-1QAs peers.

* 60% of 1QAs have some form of career advancement in place in their firm. By contrast, only 34% of non-1QAs are implementing career advancement strategies.

The increased focus on developing career stands out significantly. It often helps alleviate the "hire, train and leave phenomenon" that many financial advisors are facing as they look to transition their firms in the near future (nearly 33% of firms plan to transition over the next seven to 10 years). Investing the necessary time in developing job descriptions and career paths is difficult for everyone, but the firms that are making these kinds of investments are seeing the results-greater owner income, revenue and profit.