The financial advisory business has run into a major talent crunch. There just aren’t enough good people to fill the seats available, according to Moss Adams’ 2007 annual report on compensation and staffing in the advisory industry.
“I do believe that there is a shortage of talent,” says Rick Bloom, president of Bloom Asset Management. “Especially for a fee-only advisor, because there has been huge growth in that area of the business,” he says. “I think also because more people are distinguishing between what is a financial advisor and what is a financial salesperson. When I talk to advisors and they look at hiring, it’s difficult for them to get good resumes in. A lot of firms are adding to their staff.”
That’s good news for financial advisors. But it’s also a hidden positive for firms: The talent crunch is partly due to the fact that a growing number of clients are seeking financial advice. The typical firm now serves 171 clients, up 17 percent versus a year ago, according to the Moss Adams report. Average revenue has also soared to $1.6 million on average in 2006 from $632,000 in 2000.
To keep up with the growth in business, firms are doing more hiring. On average, advisory firms surveyed by Moss Adams expected a 14 percent increase in staff in 2007. Advisory professionals are in the greatest demand, with more than a third (37 percent) of firms planning to hire an additional advisor in 2007. By comparison, less than a quarter (23 percent) of firms hired additional advisors in 2006. Also high on the hiring priority list were support staff (25 percent of firms) and administrative staff (23 percent of firms) for 2007.
Bloom says his firm has hired three new people this year, two of them he found by word of mouth. “We were lucky. We got a really good person. Because we got a lot of resumes for people who just weren’t qualified for the job. A couple of years ago, we were hiring, and I got tons of great resumes. Back then I had to limit who I interviewed.”
Not everyone is suffering. Rich Steinberg, president of Steinberg Global Asset Management, says his firm doesn’t have a problem finding good hires, but he says he has been more willing than most to look for talent without industry experience. His firm hired someone to handle client service who had no experience in the financial advisory industry and that person has worked out very well. “The industry gets caught up in wanting to hire industry people, but if you have the right personnel to train people, you can train them pretty easily.” Still, he says, some geographical regions probably experience more competition than others.
In any case, the jacked up demand for talent is kicking up compensation levels too—particularly for experienced professionals. Lead advisors are now getting an average of $150,000 in compensation, up 41 percent versus the previous year. And average total compensation is up 44 percent versus two years ago to $840,000. What’s more compensation now accounts for, on average, 69 percent of all expenses for advisory firms, with 52 percent going to advisor professionals.
To keep the talent they’ve got, and attract recruits, firms are also adding compensation incentives, creating career paths and offering ownership to employees, says Moss Adams. Today, just 19 percent of firms offer a career path with ownership, but another 25 percent are considering offering that option to staff. Meanwhile, more than three quarters of firms offer some kind of defined contribution plan and benefits as a share of total compensation costs have risen steadily since 2002. Bloom says his firm, for example, already has a strong 401(k) plan, but is looking at adding health savings accounts.
Firms are also increasing the use of non-professional staff and outsourcing certain non-critical activities to help alleviate the staffing problem. It’s not going to get any easier, Moss Adams says: As aging owners and advisors retire, the talent crunch could worsen. In 2007, roughly 23 percent of firm owners were over the age of 55.
Bloom is more optimistic: “I think it’s going to be alleviated in the next few years because schools are training more individuals,” he says.