Finding and keeping new advisers (Webcast transcript)

The following is an edited transcript of the webcast “Finding and Keeping New Advisers,” which was held March 15. Deputy editor Evan Cooper and reporter Lavonne Kuykendall were the moderators.

InvestmentNews: Tell us a little bit about where you were and where you are now.

Mr. Brown: I came out of the Texas Tech program in December 2002 and it was a challenge getting a job. I took the [certified financial planner exam] in July, ended up becoming a full CFP in 2005 and finally found a job with a small fee-only firm. That was before there were any career days or internship programs. So basically, I had to cold-call planners to try to get them to understand what I could deliver.

InvestmentNews: Where was the firm with which you found a job?

Mr. Brown: It was in Dallas. It was through my network, and that is going to be one of my themes for this call. The network is the way to go. The Dallas/Fort Worth [Financial Planning Association] president had come to speak to our school about two years prior, and I had stayed in touch with him. He had started a firm three years prior in 1999 and was just getting started. I ended up getting a job with him. He was a sole practitioner, very little under management, very little revenue, but the idea was for me to come in and do absolutely everything. Everything up until that point was in his head. The expectation was for me to set up all of the planning, do all of the plans, be the lead contact for the clients, handle all of the client service so that he could get out there and get the business.

Mr. Pitzl: I also went through an undergraduate CFP program. I graduated from the University of Wisconsin in Madison in 2003. I found my first job out of school in a relatively similar manner to Caleb, where it was all about networking. At the time, there wasn’t anything like a career day. We had some connections with firms in the Milwaukee/Chicago area and we would do field trips to visit firms. At one point, we decided we wanted to take a trip up to Minneapolis. Not knowing where to begin, I contacted the president of the FPA in Minnesota at the time, who happened to be a principal at Accredited Investors [Inc.]. We continued a dialogue, and that is how I ended up with my first position there right out of school.

InvestmentNews: Deena, are Joe and Caleb’s experiences typical of what graduates are undergoing?

Ms. Katz: A lot of the colleges and universities now are bringing their students to conferences and programs, and connecting them with advisers. We try to make it a little easier. They don’t have to do so much scrambling as Caleb and Joe did.

InvestmentNews: Do you find that the financial planning firms themselves are more receptive these days to bringing on newcomers?

Ms. Katz: Financial planning is very young. It is 40 years old. When I started 30-something years ago, we had to open our own practices. There was no place for us to go and apprentice or be mentored unless it was by someone else who owned another firm. So this is relatively new in the last 10 to 15 years that we are able to bring on people in positions where they can career-path up to an adviser position and maybe even succession.

InvestmentNews: Joe and Caleb, did you ever think of working in a brokerage firm first and learning that way?

Mr. Pitzl: I did three different internships while I was in college, all with firms that were more the broker-dealer, or “sales,” side of the business. In terms of my personality, skill set and what I thought I brought to the table, that just wasn’t going to be a very good fit for me. I wasn’t very comfortable.

Mr. Brown: When I first started interviewing, I had one interview with an insurance-type firm and knew right off the bat after going to some industry conferences and coming through the Texas Tech program, where the focus is on the smaller, fee-only-based firms, that that wasn’t going to be a good fit for me.

InvestmentNews: Deena, of the student population, are people who are attracted to financial planning more interested in it for the planning aspect?

Ms. Katz: I would say 85% to 90% take the career path of working for another adviser or boutique kinds of firms. Some of them — not many — will go to larger broker-dealers. Today we give them an array of business models and let them choose where they are most suited. But they do tend to gravitate to the smaller, boutique firms, rather than larger broker-dealers.

InvestmentNews: For advisers who have a broker-dealer background, is there a sense that people should come up from a sales point of view, rather than from a planning point of view?

Ms. Katz: If we fail our students in anything, it is probably in the sales area. Academic programs have historically not spent a lot of time on sales training, which is different than academic education around the professional discipline of planning. But that doesn’t mean that those folks can’t get that training and shouldn’t be offered that opportunity, if that is the direction they want to go.

InvestmentNews: Caleb, do you feel that that part was missing in what you learned? Are you learning it now on the job?

Mr. Brown: I had been exposed to a little bit of that through the internships I had. Coming out of school, I felt I had a really good academic base. I knew how to do financial planning and all of the quantitative elements it takes to do this job. But actually being a financial planner and sitting with clients, I didn’t feel very confident about.

The bottom line is, you are always going to have to sell. A lot of candidates call me and say they want to go fee-only because they don’t want to sell. I have to spend a lot of time educating them that even if they go to a fee-only firm and are not selling products, they are still selling clients on why they should do what you are telling them to do. And quite frankly, I think that is more difficult than selling a product.

AGE DIFFERENCES

InvestmentNews: What about from the client’s point of view? Isn’t there a disconnect between someone who is, say, 58 or 60 listening to someone who is 28, telling them what to do about retirement? Don’t they feel like the adviser doesn’t have any experience?

Ms. Katz: I’ve always said it takes an old doctor and a young physician to give good patient care. So we always put our advisers together in a team with an older and younger adviser. The young advisers have the newest information, the cutting-edge technology and understand the analysis of things. No, they don’t have the same experience, and they find it more difficult to relate to people at an older age. However, we do teach them a lot of things about counseling and behavioral finance and ways of understanding what people are going through. So get yourselves these great, wonderful, bright people out of school. They are eager and enthusiastic. But they don’t have the gray hairs. So put them together with people in your firm who have more experience, and you will have a richer experience for your clients.

InvestmentNews: What are best practices for bringing on somebody?

Ms. Katz: Young people today are not looking for jobs; they are looking for careers. So they need well-written job descriptions and a clear career path and a competitive compensation structure. You want to make sure that you have the right fit, so if you are not doing testing with personality and work style and aptitude, it may not be the right person. You need to know who your candidate is and what you are looking for. A lot of advisers say, “Gee, I wish I could clone myself.” No, you don’t want to do that. You want to find someone who can supplement your skills and capabilities, because you can do what you do. You need somebody who can do what you can’t.

InvestmentNews: Those who are good at rainmaking probably need help in actually executing all of the business that they bring in.

Ms. Katz: Absolutely. My partner is an idea hamster. He throws out ideas all the time. We have a whole raft of people who grab those ideas and say, “This is a good one. Let’s do this one. Nope, that one stinks; let’s let it go by.” So if you are the rainmaker and you are just hauling people in, you are not servicing those people. You may be less selective, so you need people behind you to say, “Wait a minute, these aren’t appropriate for our practice.”

InvestmentNews: Let’s talk about one of the main issues: money. What do young advisers get paid these days?

Ms. Katz: Generally, it is between $35,000 and $55,000 for an entry-level position. It also depends on what specifically you are asking them to do. Those who come to the table with more skills and hit the ground running tend to make a higher salary. If they come out with a master’s in financial planning, they tend to make a higher salary as well, probably around a $10,000 premium.

Mr. Brown: It depends on the size of the firm, the role, the revenue, what you are going to have them doing, how much mentoring the firm owner is going to do. But I have seen it anywhere from $30,000 up to $90,000. Most new grads are going to get between $40,000 and $50,000. Just the other day, I had a new grad make $50,000. Another experienced adviser, who has been in the industry for about seven years, responsible for $5 million or $6 million worth of client revenue, is making $60,000. So I am still trying to figure that one out.

COMPENSATION

Mr. Pitzl: A lot of times, the compensation packages are misaligned. There is a base salary of X and a potential bonus of Y, and whatever that bonus is contingent upon often doesn’t align with the job description. For example, it is not very uncommon for young advisers to have a base salary and also receive some incentive compensation based on revenue that they produce. But the expectation is for them to be at their office, at their desk, and at their senior adviser’s disposal from 8 a.m. through 5 p.m. or 6 p.m. And there isn’t time to generate any revenue that way. So it just isn’t going to work. There are also some interesting packages out there. Say a firm is trying to implement new planning software. If employees can get it fully implemented in three months, they get a bonus of one thing. If it takes six months, they get a bonus of another, and if it doesn’t happen, they don’t get a bonus at all. There are ways to tie compensation to what the firm is trying to accomplish on the whole.

InvestmentNews: Once you hire young advisers, how do you get them to stay?

Ms. Katz: There are different career paths in firms. You may be bonusing people for keeping clients. You may be bonusing them for bringing in new clients. You may be bonusing them for different activities. And that is a much better way than having a blanket bonus when the firm grows. People will stay with a firm when they can answer the question: “If I do more of this, will I get that?” They understand what their job is and they will be happy because they are going to get compensated based on that particular job and responsibility. They also want to see a future — “Where can I go from here?”

InvestmentNews: Where do they want to go? Do most want to take over a firm or go out on their own?

Ms. Katz: It is all over the place. Some of them would like to be in a firm where they can be the succession plan. Many of them don’t come to this to be in their own firm alone. They recognize the value of being with others — just as there is a wider knowledge base, there is more opportunity for making more money. But — and this is probably where the biggest disconnect is — they want to be owners in these firms. And the people who have started these firms — old folks like me — are saying, “Wait, I built this; it took me 20, 30 years to do this. I’m not going to just give it to you.”

Mr. Brown: Getting back to keeping advisers, you need to keep them challenged, constantly increasing their responsibility. These folks want to move up. They want to increase compensation, responsibility and client interaction. The second point is, the firm owner must always communicate the firm’s strategic vision and how that employee fits in. If that employee sees that the firm owner sees them there long-term, they will be there long-term.

HIGH EXPECTATIONS

Mr. Pitzl: It is important to remember that in this world, everybody is a free agent. What we own and possess is the knowledge and skills that we have attained. So if we are not being challenged, it is going to create some tension.

InvestmentNews: Joe and Caleb, did you find frustration in your first jobs in that regard?

Mr. Brown: I didn’t. I was pushed out of my comfort zone constantly. I was in over my head. Firm owners who aren’t good managers will let people just get comfortable. Sometimes these Gen Yers need someone to say, “Look, you need to start pushing yourself. I have the expectation that in two years or in six months, you will be doing this. You will be leading client meetings.” That gives something for the new planner to shoot for.

Mr. Pitzl: I was constantly pushed and challenged. I feel very, very fortunate about the environment that I was in right out of school. I’m not really convinced that literal ownership is what a young adviser needs, but they need to feel like they own a part of something greater. They need to be able to buy into what the firm is doing. Each of us had what I would call “ownership” of a specific project or process at any given time, which we were charged to see through from start to finish. Ultimately, these projects did get integrated into the client process and really did make us feel like we were part of the success of the firm.

InvestmentNews: The better firms seem to have goals and plans for where they are going. But haven’t you found that many firms don’t have that?

Ms. Katz: Most advisers don’t have a business plan, a marketing plan, a career path, job descriptions, operating processes. Most of them start out just working with their clients and one day have a bigger firm and realize they need help. And that is how they bring on the next generation of folks. And it is sad, because when you bring someone into your firm, they need to be able to see the vision that you see and where they fit into that vision. Sometimes it takes newer folks coming on board to be able to get you to start thinking about your own firm. A lot of the kids coming out will go in and say, “You don’t have a business plan? Here, we have done this at school; I will help you do this.” If you come up with a few benchmarks for your new hires the first year — certain skills they need to be able to do by the end of six months or 12 months — they get to understand what that really means to be able to qualify for the next level of their path.

TAKEOVER BATTLES?

InvestmentNews: What are some of the activities in which NextGen advisers are engaged?

Mr. Brown: What is exciting for me is, we are starting to see some of these NextGen people take over the ownership. It will be interesting to see how the intergenerational dynamics play out, because we have three in play: baby boomers, Gen X and Gen Y. Gen X is saying, “Well, we are just counting our days until the baby boomers turn over the reins to us.” And Gen Y is saying, “Hey, we are going to take over these firms.” So there is a lot of stress and strife between Gen X and Gen Y.

Mr. Pitzl: We are like-minded people experiencing similar things. You see through the explosion of things like Facebook and Twitter and LinkedIn that really this generation loves being connected. At conferences, we have our own little subgroups. Within the FPA conference, this will be the second year where we have a NextGen track. We hold our own conference once a year. We have a private message board where we can talk about anything from technical issues to succession and career issues.

InvestmentNews: Do you see quality, cutting-edge technology as a draw for new advisers, and do you see them wanting to leverage social media?

Mr. Pitzl: Absolutely. Twitter is probably the greatest news filter on earth. I just pop that thing open at the beginning of a day or a couple times a day and have people that I find influential tweeting what they think I should be reading. It is just a wonderful thing.

Ms. Katz: You hire these young people, and they certainly know their way around Twitter and Facebook and LinkedIn. They will help put this in place in your practice. But there are some very specific rules around social media, and you have to be careful.

InvestmentNews: How can someone join the NextGen group?

Mr. Pitzl: You have to be an FPA member and under 36 years old to be part of FPA NextGen. If you go to the FPA website, there is a tab for “Connect,” then “Communities of Interest” where you can find a link to join.

InvestmentNews: Do either of you anticipate taking over a planning firm?

Mr. Brown: I am a CFP first and always will be, but I switched over to full-time recruiting in 2009. I still do planning work on a pro-bono basis for a handful of clients.

FUTURE PLANS

Mr. Pitzl: Currently, I do not own a firm, but it is a work in progress. My partner, Jason [Good], took over this firm last May. The previous owner of the firm is 67 years old and semiretired in Naples [Fla.]. We have about a dozen clients in the Naples area that he still plays golf with and goes out to lunch with, and we go down there to visit once in a while. Jason came to the firm about two years ago.

The firm was largely asset-management-only. Jason knew he wanted to do more planning work. My background is very strong on the planning side; Jason’s is very strong on the investment side. So we work well as a team. I just turned 30 last month, Jason is 26, going on 27. Between us, we have about 85 clients and manage about $130 million for those clients.

Over the course of this transition period, we haven’t lost a single one. So that is something we are proud of. The average age of our client is 64, and they seem very relieved that there is a future to this firm and that they don’t have to be concerned about their adviser retiring anytime soon.

InvestmentNews: Do you run into any skepticism because you are young?

Mr. Pitzl: There is definitely a barrier there for some people. But we find that once we have about five minutes to sit down and have a conversation, that age barrier seems to evaporate. But there are plenty of people out there who are not even going to come in for that initial meeting. And it’s OK. There are plenty of people out there to work with.

InvestmentNews: How do you get the initial meetings?

FINDING PROSPECTS

Mr. Pitzl: Through a variety of channels. Social media is a new thing for us. Just participating in some of these social-media outlets increases our search rankings. So when people are Googling for a planner or looking for information, we come up more quickly. And I do some blogging for the FPA website, which finds its way onto our site, as well. Links via LinkedIn and Twitter generate pretty decent traffic. But more than anything, it seems that clients are very happy with the firm becoming more of a planning-focused firm. They really like that, and as a result, we are getting a great deal of referrals from existing clientele.

InvestmentNews: Are their planning issues mostly retirement-related?

Mr. Pitzl: We are getting referrals that are lot like our existing clients, which means that they are very close to retirement. But we are also making a conscious effort to look for people who are in their 30s. I am absolutely in shock at how many have already amassed $250,000 to $500,000. We look at that as a great opportunity because it falls below the radars of a lot of firms with a $500,000 or $1 million minimum. That type of clientele seems to be very, very open to advice. They really like the comprehensive approach and are willing to pay fees.

Mr. Brown: There is a marketing opportunity for younger advisers joining firms. As clients retire, revenue is going to go down. So this is a great opportunity for a younger adviser to come in and find someone who doesn’t have assets but has a huge income and wants to start putting money away every month. That can help smooth that revenue out. I have seen a lot of advisers come in and help owners with revenues, even though most of the jobs are not going to require business development.

InvestmentNews: Are younger clients more open to working with younger advisers?

Mr. Pitzl: Oh, yes, they are looking for somebody who is experiencing life the same way they are. If they are going to establish a relationship, they want it to be there for a long time. So it is important to have at least the possibility of that longevity.

InvestmentNews: Any last thoughts?

Ms. Katz: These new hires can be your succession plan, not just an exit strategy. This next generation is coming out much more prepared than we were, much more ready to tackle the current environment than we are.

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