Firms seeking recruits offer a pathway to partnership

After cutting back on hiring in the wake of the 2008 downturn, advisory firms are seeking fresh talent — partly to jump-start growth, which has slowed in the past year, and partly as a form of succession planning.

According to financial advisers at a workshop on compensation and staffing conducted by IN Adviser Solutions in Chicago last week, firms are turning to recruitment as a means of succession planning. Instead of focusing on experienced advisers who will bring business with them, owners increasingly are willing to offer partnership opportunities to less seasoned recruits in order to train them in the firm’s business philosophy.

That may be the only way to attract the best candidates, who want a clear path to ownership, industry experts said.

“You make more owners so the pie grows,” said Armond Dinverno, president of Balasa Dinverno Foltz LLC, a panelist at the workshop.

But “you only want to make partner those who see your vision and are there for the long term,” he said.

It can be difficult to hear college graduates and relatively inexperienced advisers talk about their partnership expectations when such opportunities were so limited in the past, said longtime advisers who attended the conference. But panelists argued that it is in advisory firms’ best interests from both the growth and succession-planning standpoints to develop a partner track.

The latest InvestmentNews/Moss Adams Adviser Compensation and Staffing Study, sponsored by Pershing Advisor Solutions, found that the most successful registered investment advisory firms were three times more likely to have a defined career path than the average firm.

Marita A. Sullivan, chief executive of JMG Financial Group Ltd., said her compensation strategy is largely a matter of encouraging growth and employee longevity.

The firm keeps a close eye on salary ranges in its area so that it remains competitive. Its average employee tenure is 18 years.

“If you have the perks, and your employees are your assets, you will keep them,” Ms. Sullivan said.

Nonpartner employees are eligible to earn bonuses based on the firm’s growth. One example: If the receptionist refers a client, he or she gets 20% of the revenue generated in the first year.

“If everyone is successful, the partner advisers will be successful,” Ms. Sullivan said.

Balasa Dinverno Foltz has developed a compensation plan that rewards advisers for business development and will help finance an ownership stake for those who are eligible.

The firm frequently hires advisers who don’t have their own book of business, Mr. Dinverno said.

“We hire people who we think have the tools to get there,” he said.

“Our whole compensation strategy is based on acquiring the best talent and keeping it. If they are really successful, they will hit a different level,” Mr. Dinverno said.

PRECAUTIONS

Firms with a successful partnership plan employ some safeguards, he said.

One is to require those who leave the firm to sell back their stock at a price that may be below the purchase price.

Balasa Dinverno also opted to give all shares the same voting rights, rather than adopt a class structure, Mr. Dinverno said.

It was becoming common for candidates to ask about a partnership track, “even if they are straight out of college,” said Richard Marks, chief operating officer of Capstone Financial Advisors Inc.

“We have lost some candidates over that,” said Cynthia Studrawa, human resources manager at GV Financial Advisors Inc.

Mark J. Smith, principal of wealth management firm M.J. Smith and Associates, said he’s had some experience with partnerships that haven’t worked out, and he has learned that having a well-thought-out contract is essential for firms that decide to offer new hires a chance to become owners.

Ms. Sullivan said her firm has revised its partnership plan over the years.

“We have more stringent criteria now,” she said, explaining that partners must leave the firm at 70 and sell back their stock, subject to a vote of the board. “We want the firm to be owned by current employees.”

Mark Tibergien, managing director and chief executive of Pershing Advisor Solutions LLC, a unit of The Bank of New York Mellon Corp., and a speaker at the conference, endorsed the partnership idea.

“As firms become bigger and more complex, they need more revenue generators,” he said in an interview. “One person can’t do it all.”

Email Lavonne Kuykendall at [email protected]