There's one problem that every advisor faces sooner or later: capacity limits. Luckily, it's no secret how to fix this - just balance new client growth with additional advisors, right? Unfortunately, it's not as easy as it sounds. And the strategy you choose can substantially affect your growth and your firm's ultimate success.
There are a few options. You can add advisors by developing them in-house or recruiting experienced talent, or you can accelerate your growth by merging with or acquiring an established practice.
Our firm has been doing all this for years. We continue to bring on interns each year, some of whom become full-time employees (and a few of whom have become advisors). In 2012, we combined two large enterprises, instantly adding six experienced advisors with established clientele - and we continue to actively recruit established firms.
Regardless of how you expand your advisory staff, it's a time-consuming, expensive and risky endeavor. But there are also ways to minimize risk and increase your chances of success.
RISK & REWARD
Let's take a step back and ask: Is there a reasonable return from the effort involved in adding talent?
The good news is that the answer is clearly yes.
Before our merger, both Savant and my previous firm had established programs for professional development. Going forward, our strategic plan includes continued recruiting and development of new employees, along with a formal internal leadership training program for future managers and leaders. We continue to use outside firms to provide communication, and interpersonal and sales skills training.
Unfortunately, it is difficult to accelerate this process. It takes years to develop advisors who can simultaneously develop new business, provide superior value for clients and manage a team of junior advisors while developing them. Worse still, there's a real risk your top talent will leave you if they don't see a clear path to equity ownership.
All factors considered, internal professional development strengthens your firm's culture and maintains your core values, but doesn't provide a supercharger boost for superior, sustained growth.
We've also tried recruiting individual experienced advisors who have a book of business, but it hasn't worked well so far, primarily because we've encountered some cultural mismatches.
Most of those we've talked to are looking for a "better deal." They're focusing on the tantalizing promise of quick rewards; working toward a long-term relationship just isn't in their vocabulary.
Cultural mismatches didn't work back when I was dating, and they won't work in our business, either.
GO OR NO-GO? 16 QUESTIONS
To reduce our risk of a mismatch and increase our success rate, our firm developed a 16-point list of deal-breaker questions to help us evaluate potential business partners - whether individual advisors or potential candidates for M&A deals.
This list contains issues that are critical for us. You may have different priorities, so I encourage you to develop a list of your own - and if you can't check off your important issues, consider putting the brakes on any deal.
Here are the questions we ask:
*Do the candidate's firm and people share our core values?
*Does the candidate's culture align with and enhance ours?
*Does the candidate's investment and planning philosophy match our evidence-based investing approach?
*Is the deal accretive to both parties and does it reinforce our long-term growth strategy?
*Does the candidate embrace our team approach to client service?
*Is the candidate receptive to our business model and able to bring additional best practices and capabilities?
*Is the candidate eventually willing to adopt a unified brand?
*Does the opportunity enhance or complement our human capital needs?
*Would we be excited to spend a lot of time with the key people in this firm?
*Does the deal benefit non-owner constituents such as our team, clients and community?
*Does the opportunity enable us to have fun while becoming an industry leader?
*Is the opportunity in a desirable and growth-oriented location?
*Will the deal improve liquidity possibilities for all shareholders?
*Would merging with this firm provide a significant growth opportunity in a current or new market?
*Is the candidate attracted to our firm's vision for our clients, employees and communities?
*Does the candidate have a strong culture of compliance to assuage any concerns of regulatory noncompliance or disciplinary issues we would be required to disclose?
WHAT MATTERS MOST
I sometimes get asked which of the questions is the most important. My response: Culture is the most important determinant of a company's ultimate value.
Just what the heck does "culture" mean? There are many definitions, but the best fit for us is "the beliefs and customs of a particular group" - a way of thinking. At our company, beliefs and culture are based on core values. We publish our core values, core planning beliefs and core investment beliefs on our website; our core values show up throughout our literature and are infused in our commentary. Our values and our culture are critically important.
We realize quantitative metrics are also important; financial criteria must be satisfied to make any combination work. However, the magic glue that makes partnering with another firm successful is a shared set of core values - which for us encompasses personal culture, client-centricity and positive energy.
Not surprisingly, these are the same attributes you should be looking for in advisors you want to develop internally.
Here's a telling question: When you first meet a prospective business partner, what do you talk about? We have a good list of qualitative factors to discuss when we meet with potential business partners. In fact, that's all we talk about at first.
As it turns out, recruiting isn't so different from talking with a prospective client. You don't want to just talk about numbers. This is about personal stuff: It's about family, about a personal future and past, about ideas and ideals.
Over the past year, have you asked your advisors about their personal future? Have you been fearless enough to ask about their personal situation, just as you would with a client? If you can answer yes, then you're on the right track with developing talent.
World-class firms don't build only on numbers; nor are they concerned only with how big they get. Rather, they focus on recruiting the best professionals who share a cultural view. These firms are built on a foundation able to withstand the storms of investment upheavals and fads, regulatory mismanagement and economic cycles.
I'm not saying number skills aren't important for advisors - but for anyone planning a career as a CFP, number skills are simply table stakes. To minimize the risk to all stakeholders, world-class firms recruit and promote professionals who, first and foremost, espouse the firm's core values and culture.
Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and vice chairman of Savant Capital Management, based in Rockford, Ill.
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