Opaque business models cloud women’s way in advisory business

Clear as mud: That’s how women perceive the financial advisory business model.

As they explore career options, the profession’s barely explained array of business models — fees? AUM? commissions? — often derails women’s interest in advisory careers before they even get started, say women and career experts. Business model confusion emerges again when women try to figure out how to convert career experience equity by establishing their own firms.  

Clarifying the fiduciary standard is job one, said Luke Dean, associate professor at Utah Valley State University.

“You can’t be a respected profession unless you’re willing to hold yourself to a fiduciary standard,” he said.

Women students intrigued by financial planning recoil at the prospect of a hard-sell, commission-driven job, Dean said, echoing the observations of academics and advisors who often talk with aspiring advisors.

"The fiduciary standard should make it easier. It’s straightforward as to how you get paid,” said Tarah Williams, president and COO of Prospera Financial.

It gets worse. When they're recruiting students, firms don’t clearly communicate how they make money. The job title "advisor" is almost a generic term used by all kinds of investment, brokerage and insurance companies, as well as advisory firms, further tangling students’ understanding. “You can’t have multiple people claiming to be advisors when some are fiduciaries and some are straight-up salespeople,” said Dean.

Confusion over such a fundamental issue discourages women, who often are attracted to financial planning as a mission-driven profession, said Courtney Ranstrom, co-founder of Trailhead Planners. “Favoring the AUM model can prevent people from accessing good financial advice,” she said. “The business model is at the heart of the profession’s identity. It leads into the problem of how we get women and women of color, especially, into the profession. “

IN BUT NOT UP

When women do join advisory and investment firms, they typically encounter another round of barriers. InvestmentNews research indicates that women account for 80% of administrative and support roles at firms. But if firm leaders don’t include support staff in business development, client retention efforts and revenue analysis, staffers don’t gain the skills they need to build business — at that firm or on their own.

“Even for veterans in the industry, it’s not clear at all,” said Katie Burke, who founded her own firm, Method Financial Planning, and runs Equita, a community for women advisors.

Burke started her career in an operations role, supporting three partners. But she wanted to work with clients. Instead of helping her gain business development skills so she could build a roster of clients, the firm’s leaders hired a new staffer solely to bring in clients.

“I was left behind,” said Burke. “They thought they’d solved the problem and they moved on. They never would have let me ever have a different opportunity.”

In fact, her former bosses discounted her ambition and abilities so much that when she quit, they didn’t even ask her to sign a noncompete agreement. She took several advisory clients with her — representing the type of work that the partners didn’t want to do, Burke notes — and rapidly built her own firm.

“The problem is, you get tracked into that,” Ranstrom said, referring to support staff who excel at their jobs. “No one tells you that you can do more. You’re either in business development or operations, but there’s not a middle ground for doing solely financial planning.”

NEW MODELS, NEW GROWTH

Equitable Advisors is gaining momentum with a new career path that blends a clearly outlined revenue model — AUM — with a relationship-first model for winning clients, said David Karr, chairman of Equitable Advisors. Specifically to attract women, Equitable Advisors teamed up with Columbia University to create a financial coaching program that blends a holistic approach to advising, resulting in an investment advisor representative certification. Over a third of the program’s participants are women, he said. 

“Our women financial professionals were disproportionately interested in being trained in this manner rather than just, ‘here are the numbers’ and putting them into a plan,’” Karr said. “The program looks at what people want from their lives and how money fits into that.”

Equitable Advisors is gaining critical mass with women advisors, with a 46% increase, year over year, in women field leaders at its 80 offices around the country, Karr said.

Consistent, clear communication from all employers and industry organizations is a common-sense, low-cost step that would clear the way for showcasing the profession’s advantages to women, academics and women advisors agree.

And for women who hope to parlay support experience to achieve firm ownership, firm leaders would do well to reframe revelations about the mechanics of the business as a retention tool, said practice development consultant Angie Herbers.

Women’s interest in building their own practices is a chance to retool obsolete modes of business development and build internal momentum, Herbers observed.

“Create [junior] service advisors who serve clients at a professional level,” she said. “Help them serve clients really well and that will generate referrals.”