A Partner in an independent firm in Arizona, Paul Ahern wants to hire a few more advisors to help expand the practice. But he's having trouble finding the right recruits. We asked our panel of experts — Philip Palaveev, senior manager for Moss Adams, a Seattle-based accounting firm specializing in financial advisors; Chip Roame, managing principal of Tiburon Strategic Advisors, a Tiburon, Calif.-based market research and strategy consulting firm for financial institutions and investment managers; and Hellen Davis, president of Indaba Training Specialists, a management consulting and training firm in Treasure Island, Fla. — to weigh in.
Paul Ahern knows what he wants: to expand his 12-year-old firm's presence throughout the state of Arizona by opening up a few new offices and hiring two or three advisors to help him make that happen. He figures the practice, WealthTrust Arizona — with its $650 million in assets, five advisors, nine additional employees and two other principals — is ready to make the leap. But there's a hitch. Ahern, 40, hasn't been able to find advisors who would make a good fit.
Ahern got his start in the business right out of college in 1992, when he found a job working for what was then called American Express Financial Advisors, in Minneapolis. Four years later, a former associate called him from Scottsdale, Ariz., inviting him to join a newly-created firm there, called DeGreen Wealth Management. The practice was built around offering high-net-worth individuals estate-planning services that would be integrated with financial planning. Ahern, who saw it as a promising chance to work with more affluent clients, accepted. Two years later, he was made a partner. Then, in 2006, the firm's co-founder decided to move back to his home state of Ohio, and a holding company, Nashville-based WealthTrust, bought a majority stake in the firm, changing its name in the process.
Now, Ahern has set his sights on more expansion. That means hiring several new advisors and increasing the firm's operations in southwest Arizona. His requirements: Advisors need to have an established book of business — at least $25 million, but preferably between $50 million and $100 million — and have experience working with high-net-worth clients. His ideal would be a small independent RIA advisor with an advanced designation who needs help growing his or her business.
What is he offering recruits? For one thing, according to Ahern, they will get access to a high-end estate-planning law firm paid on retainer. His practice handles all human resources and compliance matters, and there's a full-time CEO. Advisors also get the right to earn stock- appreciation rights when the firm eventually goes public: The majority owner plans to buy up a number of firms, accumulate about $10 billion in assets and then do an IPO. In addition, Ahern points to the payout. Advisors, who would be employees of the firm, receive up to 45 percent of their book of assets.
But Ahern has had a tough time finding Mr. or Ms. Right. He has hired one advisor in the last four years, and, over the past three, has interviewed about 20 candidates. He was relying mostly on word of mouth until recently, when he started posting job listings on Schwab Institutional's site. And he's hired two head-hunters in the past four months. Since then, he's interviewed a few people, but they either didn't want to walk away from stock options, had a strict non-solicitation agreement or weren't a cultural fit. That's because, according to Ahern, the practice has a unique culture in which decisions are made by committee. “Each advisor's input is welcome, but they have to realize they're only one vote,” he says. “But many successful advisors we've met believe — right or wrong — that their way is the only way.”
He's looking for someone with an established book of business of $25 to $100 million in assets. My question is, why would these kinds of advisors go to Paul rather than start their own firms? What can Paul provide them with that they can't get on their own? What he needs to focus on is what makes him different from all the other options in the marketplace. Yes, his firm has a CEO, but I can't remember the last time I heard someone saying how much they needed that. People aren't exactly clamoring for HR departments, either. He really needs to analyze the other possibilities advisors can choose from — RIAs, independent b/ds and so on — and pinpoint the attractive elements that make him stand out.
If the firm owns the client relationships, then there's one especially important question: Are the advisors building equity in their own practices, or just receiving income from it? If they're relying on WealthTrust to go public so they can build equity, generally speaking, my experience with such programs has been that the number of shares advisors receive is relatively small. Also, if he's looking for RIAs, they usually perform their own operations and collect their own revenue. It looks as though he's positioning himself to be a b/d for an RIA. But the biggest reason an advisor decides to go the RIA route is because he doesn't want to have a b/d.
Also, if you're paying someone a percent of his or her production, you create a vendor-client relationship. The advisor becomes a client. As a vendor you have to realize that the advisor can leave easily. Ahern is setting himself up to have the same problems that small b/ds have.
Part of the problem may be how he's approaching the cultural fit issue. If he's looking for two or three advisors — as opposed to a platform of 100 — he can create a service package that makes sense for each advisor. He doesn't have to offer something generic. It's custom cooking versus fast food. The advisor may be looking for, say, an office in a specific location or certain services. It's easier to respond to an individual.
But, I also have to ask: Why is it that so many people don't fit the culture? Often a problem with cultural fit disguises the fact there's not a compelling enough proposition on the table.
If I had $50 million in assets, I'm not sure that I would think I was unsuccessful, or that I needed to join someone else's firm. If I'm sure I can move my $50 million, I'm probably going to set up my own shop. He's targeting a market of people who won't want to come work for him. Also, I have to say that a 45-percent payout doesn't impress me. It's not necessarily a bad payout — but it's not a good payout for a successful advisor.
The crux of the issue is that he needs to target markets other than the ones he's looking at now. I would consider going after people who are retiring. They might have $50 million and high-net-worth clients, but they don't want to be in control. He could hire young hotshot MBAs to run these offices. So, he'd offer a solution: We take you over, and I install a deputy to run the operation. Another possibility is to find less successful advisors with about $10 million or so. They might have talent but haven't been able to get high-net-worth people, and his resources would be able to help them get these clients. So, the advisor who's retiring would say, “This is my way out.” The younger one would say, “I'm struggling. I need your help.”
As for the voting system, does everyone really have one vote, or does he have the trump card? They may not feel their vote is really equivalent when he gets to pick who's at the table. People may hear about the way decisions are made, and think, you have to prove to me that my vote is equal to yours.
It looks like he's using a selection criterion for new hires that's too stringent. If you have interviewed 20 people over the last three years and you haven't hired anybody, I think you have to re-examine your process. Most advisors who've been in the business for more than three to five years have a high degree of integrity. They want to help people. And they have a lot of common sense as a group. That means the issue is cultural. And I think the real problem is that he's looking for people just like him; it's a phenomenon called “group think.” Many people think if we all have the same values and viewpoint, the firm will thrive. In fact, the exact opposite is true: Cognitive diversity is important. You might have a person you don't particularly like all the time, but he or she is going to provide a check and balance. When everybody thinks in the same way at a firm, it's harder to generate excitement.
I would suggest he stay out of the hiring process until the final interview. The headhunter can do the screening, talk to a couple of the advisor's customers and so on. Candidates would have already jumped through the big hoops before they meet him.
I also have questions about his system. He's talking about a bunch of independent people who may want to join his firm to get economies of scale. But running the firm by consensus doesn't fit this situation. After all, the practice isn't an ensemble, and the pay set up isn't egalitarian. Plus, I think financial planners generally don't want to make decisions. If you want to make decisions, then you want to share the revenues.
He has to be willing to make a leap of faith. What's the worst that can happen should he pick the wrong hire? If after a year it doesn't work, then he won't keep them. What are the real risks?
Ultimately, he has to keep up client service, because that's what will drive referrals and bring in most of his future clients — it's the real growth engine.
Fix My Business is a quarterly feature that seeks solutions to real-world advisory problems from a group of consultants and industry insiders. Submit your questions to [email protected].