From severe market volatility, including recent Brexit-driven dramatic market fluctuations, to the rise of robo advisor platforms, to dramatic regulatory changes, many independent advisors have a long list of what they view as the biggest potential threats to their business.
But you might be surprised to learn that a perennial problem for the industry as a whole remains one of the biggest potential threats to your business: losing valued employees.
Typically accounting for the majority of an average independent advisor practice's expenses, human capital represents a considerable investment—and it's an investment not just in an advisory practice's present operations but also in its future.
With the average independent financial advisory practice comprised of slightly less than seven people, even the loss of one key employee can deal a serious blow to a firm’s growth plans. This is a risk that is exacerbated by a talent shortage looming over an industry with a rapidly aging workforce.
What's the bottom line? Replacing good people who have quit your practice can present a very serious challenge—so serious a challenge that you're best off never losing them in the first place.
Firm owners therefore need to take a holistic look at what they offer employees and to structure those offerings in a way that most effectively attracts and retains employees, while at the same time, of course, controlling the firm’s costs.
The top three areas where advisors may need to rethink their approach are compensation, benefits and how they currently hire.
1. Compensation: Look Beyond Just Salary. There are a number of effective ways to create a more attractive compensation program without blowing a hole in the firm’s finances.
- Start by consulting compensation benchmark data. There exist reliable industry resources that provide salary ranges by geography, pay grade and other criteria. Additionally, peer study groups can be another source of valuable compensation information. Armed with this data, if what advisors are willing—or able—to currently pay an employee is less than industry standard, they might succeed in offering an employee a lower beginning salary while clearly defining future earnings potential. By having clear expectations as to what needs to be done to increase their pay and when such increases would occur, employees are less likely to feel discouraged or unappreciated.
- Structure incentives. There are several criteria one can use for offering bonuses and incentive pay. Such extra pay can be based on metrics such as revenue or assets under management goals, or a concrete demonstration of client satisfaction. But no matter how you structure incentive pay, it is best to set measurable parameters for determining a pay increase, and to tie it to something tangible.
- Consider incentives based both on firm-wide goals and individual goals. Some firms prefer a system that rewards all employees based on achieving firm goals. Such firm-wide performance objectives help employees see the big picture and work toward a common goal. On the other hand, some firms stress individual goals, based on individual achievement or completion of a project. Such individual goals can demonstrate how an employee’s specific contribution has an impact on the firm.
Each type of goal setting is valid, and a combination of the two is the most effective. But whatever compensation structure you decide to use, ensure that it motivates and incentivizes employees to accomplish your firm’s overall goals and objectives. Link pay to performance, and tie performance back to your strategic plan.
2. Benefits: Deliver What Employees Want. Benefits can be one of your most powerful employee retention tools.
- Consider flexible options. One-size plans don’t always fit all employees, and enabling customized benefits, chosen from a menu of options, can introduce flexibility without increasing costs. Millennials, for example, often prefer a greater level of work-life balance, and will be happy to gain more flexibility in their work schedules as a benefit. Offering voluntary benefits, such as allowing younger employees—who tend to be healthier—to enroll in higher deductible health plans, can enable them to maximize their take-home pay.
- Consult a specialist. Importantly, to structure an appropriate benefits plan that complies with federal and state regulations, it is best to consult with a human relations specialist.
3. Hire Strategically to Fit the Firm’s Culture and Needs. By thinking strategically about your hires, rather than merely bringing in new people to attack a growing backlog of work, owners can have a direct effect on retention success while helping their firm achieve its longer-term goals and objectives.
- Determine which resources and competencies will be required at each level and area of your organization. With an eye on longer-term needs and maintaining a definite corporate culture, think about how you will encourage and motivate these employees to support your firm’s strategies. The best outcomes are the result of communication, setting clear expectations and having a formal, strategic hiring plan.
- Hone your own leadership skills. Successful employee retention relates directly to the development of an owner’s own leadership skills. Fortunately, these skills can be improved through a variety of means, including reading up on the subject, attending seminars and utilizing the resources of leadership-focused organizations. Remember, when you hire an employee, you become a leader and not just an owner. It is your job to take charge of the goals and vision of the company and to be a caretaker of the firm’s culture.
In order to succeed in the retention of a productive staff of employees, consider the overall picture and how each new hire fits into that whole.
By setting expectations for job performance and responsibilities, defining clear career paths, and improving your own leadership skills, you will go a long way in ensuring that your practice is one that attracts—and keeps—the employee talent you need to grow your business.
Diana Keary is Vice President of Practice Management at National Planning Holdings, Inc., the nation’s sixth largest network of independent broker/dealers.