Characteristics of successful firms

As the financial advice industry continues to grow and evolve, some of the biggest challenges for advisers go…

As the financial advice industry continues to grow and evolve, some of the biggest challenges for advisers go well beyond asset management or even delivery of advice.

Running a consistently profitable practice is complex, but the 2013 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study identified some distinct characteristics of the most successful firms across the industry.

The first involves the concept of using the skills and abilities of all employees to tap into hidden strengths and pockets of expertise.

In the most general sense, this might involve greater use of non-owner employees to help improve productivity and increase the volume of client service.

The study found that advisers work with an average of 71 clients. But by bringing more employees into the client relationship, both the clients and the employees end up having a better connection with the firm.

“The advisory firms on the vanguard of this industry are those that have come to realize practice management has evolved beyond only a set of tools,” said Cecile Munoz, president of U.S. Executive Search LLC, which specializes in the financial services industry.

Cecile Munoz on building career expectations into adviser recruitment.

“Firms that are doing it the right way are looking at things more holistically,” she added. “This includes everything from where you are in the life cycle of your firm and even when you plan to exit the practice.”

IMPACT ON THE BOTTOM LINE

One obvious benefit of using employees this way is a direct impact on a firm’s bottom line.

Considering that the average compensation of a partner is $240,000 and the average compensation of an advisory firm’s “employee professional” is $134,000, a combined team will have a better margin than the partner alone.

According to the InvestmentNews study, the median revenue per professional in top-performing firms is $776,000, compared to $460,000 at all other firms.

This leads to another key characteristic of top-performing firms: recruiting premium talent.

Hiring is a recurring theme throughout any analysis of a successful advisory firm, largely because it is an area that a lot of advisers take too lightly — especially if it involves non-advisory positions.

The study identifies a self-perpetuating cycle that connects the size of client relationships to productivity, and the size of client relationships to the size of the firm.

Attracting larger client relationships and effectively managing overhead complete the list of four major characteristics of top-performing firms.

The cycle identified in the study shows better talent leading to larger firm size, leading to better visibility to further fuel growth, which attracts more high-quality clients, and leads to better profitability.

TAP EMPLOYEE RESOURCES

Making the best use of employees sometimes involves some creative thinking.

Mark Tibergien, chief executive and managing director at Pershing Advisor Solutions LLC, a partner in the study, cites the benefits of “reverse mentoring” to help older advisers learn new skills from younger employees.

“My wife was surprised to learn I now have a 25-year-old mentor,” he joked at a recent workshop on best practices.

Mark Tibergien on what advisers can learn from the Millennial generation.

The point is, the average age of today’s financial adviser is 57, and a huge, often untapped, wealth of knowledge might be seated right down the hall.

“One of the first things you need to focus on when shopping for talent is to know exactly what it is you need and to start with a clear job description,” said Mary Dunlap, owner of an eponymous recruiting firm.

Natalie Pine, a partner at Briaud Financial Advisors, described the firm’s hiring process as “extensive,” often taking up to a year to fill a specific position. Briaud was one of the firms recognized by InvestmentNews last month as one of the year’s leading innovators in the area of personnel.

“In the initial interview, I try to think if I would be able to sit in a car for two hours with this person and then still want to spend time with them afterward,” Ms. Pine said. “We also do significant testing on judgment and critical thinking, IQ and numbers skills.”

What was once almost a cottage industry of small independent advisory shops has become large and diversified, and is subject to all the challenges that come with operating any growing business in a competitive industry.

Ignoring issues related to staffing and business management no longer will cut it.

“It’s key to know when and how to add a new position,” said Marie Dzanis, head of sales and servicing at Flex-Shares Exchange Traded Funds.

“Traditionally, advisers would try to add a jack-of-all-trades so they could fully utilize that person, but that might not always work,” she said. “And you have to be open to looking at em-ployees coming from different industries.”

INCENTIVES FOR ALL

On the issue of bonuses and compensation in general, Kelli Cruz, managing director of Cruz Consulting Group, recommends offering everyone financial incentives, regardless of title or role.

“I’ve seen the most success where people get a little piece of the action, and my point of view is, everyone should be eligible for an incentive plan,” she said. “Let’s be honest — it takes your entire team to bring in new business, so why not let everyone have a piece of that?”

Armond Dinverno, president of Balasa Dinverno Foltz LLC, believes that company culture plays a key role not only in motivating employees but in keeping them with the firm.

Mr. Dinverno’s firm was also recognized by InvestmentNews as a leading innovator in the area of personnel.

“We’re always looking for great talent, but you have to create a culture that people want to be at, and that has to come from the top,” he said. “It includes every touch, interaction and communication.”