In times of turmoil, good financial advisor firms focus squarely on their clients. We saw this during the Great Recession of 2008 and 2009, and again in the wake of the 2020 crash and throughout the coronavirus pandemic.
During these periods, a lot was asked of financial advisors and their staff. But right now, as in 2010, the period of crisis is passing, and firms are growing again. As they do, their leaders are shifting their focus to retaining advisors. No one wants to their team members to join the so-called Great Resignation, a migration to greener pastures that saw 4.4 million Americans leave their jobs in September.
With retention a top priority, leaders have been thinking a lot about improving their firms’ advisor experience. But while “improving the advisor experience” is a buzzy expression, the truth is that most firm leaders don’t know how to improve the advisor experience.
So I’d like to dust off some Herbers & Co. research that, while now several years old, is as pertinent as ever. This research, which spanned a four-year period, sheds a light on exactly how to create a successful advisor experience within a firm. It consisted of a deep analysis of human capital programs, detailing information shared through polls and experimental research on virtual cultures, young advisor programs and advisor retention during the period of 2007 to 2010. We’ve been applying this research throughout the pandemic with our client firms, and it’s resulted in high retention and growth rates.
Our research revealed that firms with exceptional employees—people who were self-motivated, happy and loyal—designed and implemented employee programs in which four key elements worked cohesively together. I dubbed these elements the P4 Principles: Preparation, Pay, Perks and Productivity.
Preparation. There are two parts to preparation: Business owners must first prepare themselves to support the success of their employees. That means be willing to set aside traditional, top-down management approaches and embrace an approach involving empathy through coaching, mentoring and a lot of trust.
Then, they must prepare their employees to be great. That means creating an atmosphere that supports employee greatness, and then developing a training program to teach employees about the firm and their role in it. The training encourages them to be resourceful, unafraid to make mistakes, and willing to ask for help, which today would be called “compassionate leadership.” The goal of this training is to produce employees who manage themselves and take pride in the organization’s successes.
Pay. Throwing big salaries at “star” advisors is not the answer. Thoughtful compensation packages are. One approach we recommend is tying part of an employee’s compensation to the success of the business. This is probably most powerful way to align client’s motivation with a firm’s growth goals. We recommend paying bonuses, at least quarterly, based on the firm’s revenue. And for further motivation, we believe firms should use a tiered payout system: The higher the firm’s revenues, the greater each employee’s percentage share of the revenue.
Other compensation elements might include bonuses based on profitability or contingent on bringing in new clients. All the facets of a compensation program should be carefully thought out and based on a central goal of growing revenue through retaining clients.
High salaries are decidedly not the answer to employee motivation, as they tend to create only short-term effects. And it’s critical to avoid using compensation narrowly as a tool to keep valuable team members from leaving. Money, after all, is not employees’ primary concern. Yes, they want to earn a fair salary. But on a deep level, people generally want to contribute to an achievement that’s bigger than what they can accomplish on their own.
Perks. Offering the right perks makes employees happier, more motivated and more loyal. Medical insurance and a retirement plan are table stakes. But our research shows that the happiest employees are those whose firms offer six perks. These can include unlimited vacation time, flex time, paid lunch, expanding family leave and volunteer time, continuing education funding and sabbatical time off. Firms’ leadership might be nervous about offering some of these perks—won’t unlimited vacation time drain our available manpower? But they demonstrate trust, which is a powerful element of a successful culture. In practice, we’ve seen that team members who’ve been given great perks coordinate with each other and tailor their lifestyles in a responsible way.
Productivity. The quality of the technology that businesses provide sends their people a clear message about the importance of their jobs and how their time is valued. When advisors are asked to use obsolete or barely functional technology, their work becomes unnecessarily cumbersome. And asking them to service a large book of clients using inadequate technology can be enough to prompt them to leave. Providing up-to-date technology and a digital experience for advisory teams is a key part of supporting employee happiness.
Again, the P4 Principles are particularly relevant to today’s environment: Advisors have bent over backward to help clients navigate the pandemic. Now, business is good, and many wealth management firms are expanding into multiple geographies within hybrid cultures. As they do, they want to ensure a cohesive culture in which their people can thrive. So firm leaders are rightly prioritizing advisor experience once again.
Unfortunately, many firms will use just one or two tools in trying to ensure their advisors’ happiness and productivity. It’s important to note that firms in our study that implemented all of the four Ps were vastly more successful in terms of revenue growth, profit growth and employee loyalty than firms that implemented only some of them. Preparation, Pay, Perks and Productivity are all complementary, mutually reinforcing elements; together they create an advisor experience that is greater than the sum of its parts. Integrating the four Ps requires a commitment of time and resources. But it costs far less than chronic employee turnover and low employee productivity.
So, as we approach compensation-review season, I encourage firm leaders to think bigger than just compensation and consider the entire human capital experience. And the place to start is the place that might be the most intimidating because it will likely require a rethink of management approaches that may be deeply ingrained.
Finally, a word about firms that are at the greatest risk of advisor turnover today. These firms characteristically haven’t implemented programs outside of compensation alone, which will come as no surprise. Furthermore, they’re frequently asking too much of their people, to the point where they’re burning out. The root cause of this is a failure to anticipate what we might call busy-ness cycles. When markets are calm and there are few crises to deal with, organizations can load advisors up with clients to boost profits.
But when things get busy—when markets are gyrating, or business development is on a tear, or both—advisors don’t have enough time to connect with all the clients who need to hear from them, and they become stressed and ultimately overwhelmed. That’s happened like clockwork during boom times in the past. And we’re seeing it happening again right now.
The solution to this problem is much broader than simply raising salaries. I’ll often bang the table about the need for firms to keep advisors’ books manageable and to use hiring and technology to ensure ample productive capacity. But that idea sits within the larger framework of the four Ps. Great technology, thoughtful compensation programs, a menu of perks and an environment of self-management are the elements that, together, enable a great advisor experience.
Angie Herbers is the founder and CEO of Herbers & Co, a consultancy firm for financial advisors.