What does the term ‘human capital’ mean for the way you run your practice? Obviously, it has something to do with getting the most out of the people on your team so that they contribute to a financial advisory practice’s bottom line.

The researchers at Quantuvis Consulting, in a recent study, found that top-quartile advisory firms, known as 1QA, spend more than twice the amount per staff member than the peers who fall below them.

That doesn’t mean Quantuvis wants you to go out and start throwing money around, to bring your human capital program up to snuff.

That finding, among others in “Best Practices Study Series: Human Capital Findings 2010,” released May 31, merely suggests that successful advisory firms make intelligent, strategic choices in hiring, compensating and developing employees. Genworth Financial sponsored the study, which gathered responses from firms in May and June 2010.

Some of the findings in the report make a clear case for laying out attractive compensation for good advisors. Firms that put more resources behind employees get performance results that far outstrip those that do not. To some extent, that principle applies across the spectrum of firms, regardless of size.

“The [top quartile] firms are not significantly larger,” said Natalie Doss, research manager at Quantuvis, said in a phone interview. “The practices they are putting into place are allowing them to put greater scale and leverage behind employees.” 

Take another look at Quantuvis’ compensation findings. On average, the 1QA advisors earn 33% more than lower-ranked firms, and the lead/senior advisors at top-quartile firms earn more than twice as much as their lower counterparts, according to the study. Not surprisingly, 1QAs are more likely to invest in benefits for their team, and more than 80% of firms in that top slice provide those.

Also, 63% of 1QAs and 42% of other firms provide incentive compensation. Further, 50% more 1QAs providing incentive compensation than their lower peers.

Lest principals be tempted to think that rewarding individuals is the way to go, Quantuvis found that investing in team performance is also worthwhile. This is especially true when it comes to developing career advancement paths. It helps mitigate the phenomenon known as “hire, train and leave,” which many advisors are facing as they consider transitioning their practices over the next seven to 10 years.

A vast majority, 85%, of 1QAs have established job descriptions for team members, compared with 67% of firms in lower quartiles. Also, top firms are more likely to review job descriptions as part of the ongoing management process, to keep everyone focused and on track.

This suggests that team members need regular performance thermometer checks, not to bring down the whip, mind you, but to make sure no one slips out of a go-getter mode into cold complacency. That makes sense. The last thing you want is for your staff to become distracted, entitled and stray from a course that you have laid for the success of your personal brand and your firm.

Established job descriptions, explains Doss, give team members a clear sense of what their job duties are and how they can advance at their firms. It seems to work for the top guys, 72% of whom review job descriptions outside of hiring and promoting. On the flipside, says Doss, some firms let job descriptions them become static pieces of paper, like the 63% of lower-ranked firms that check job descriptions from time to time. That is still a majority of firms, but a decidedly less hearty amount than the top-performing firms.

Why settle for less?

Indeed, similar questions crop up when perusing through the report’s findings. Why keep a tiny staff -- assuming a larger one is affordable -- when 1QAs have a higher headcount and make better use of advisors’ time? Why not administer ability/aptitude tests, when 44% of 1QA firms use them, compared with 19% of lower-ranked ones? Have you ever used mentoring as a training method? A solid 45% of top-quartile firms have, and just 31% of firms below that mark have done so.

The Quantuvis report reads at a swift clip for about 139 pages, delineating and delving into the key tenets of a human capital program. Those are: vision and goals, organizational model, job descriptions, career ladders, firm compensation plan, new hire process, on-boarding and training programs and performance reviews.

You might find yourself looking around your own practice and wondering, “Why not do that here?” 


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