How to assess a firm’s culture in a time of virtual due diligence

The search for a “better culture” has emerged in recent years as one of the single greatest drivers of adviser movement. Yet the term “culture” itself can evade simple definition.

Culture can encompass an organization’s system of values and priorities, and influence every decision. It’s the undercurrent that directs, either subtly or overtly, the choices made and the paths taken. While a firm may endeavor to articulate its intended culture, it’s more often in the eye of the beholder — that is, how an individual experiences it, through the organization’s actions rather than words.

But how does an adviser actually experience a firm’s culture — particularly at a time when due diligence is primarily virtual? Likewise, how does a firm demonstrate its culture and avoid relying upon platitudes?

It once may have been assumed that just by spending enough time engaged with a management team, a firm’s culture would be revealed. While it can be debated if this alone could ever be relied on, Covid-19 has certainly necessitated a change in the nature of the due diligence process.  

If the role culture plays in an adviser’s assessment of any opportunity is so significant, there needs to be a way to convert what is inherently subjective and amorphous into a more objective and concrete thought process. Advisers we’ve counseled have found that answering these 11 fundamental questions as part of performing due diligence can help create a more accurate picture of a firm’s culture:

1. Who owns the client? When a firm sees the adviser as the client of the firm, and the end client as belonging to the adviser, this influences every aspect of a firm’s relationship with its advisers. Restrictions in employment agreements that limit an adviser’s ability to bring his clients with him if he were to leave are fairly standard in the industry. However, the Protocol for Broker Recruiting has gone a long way toward easing these restrictions for advisers employed by participating firms.

2. Are there limitations on client selection? It’s important to understand any restrictions a firm may impose in terms of client service. For example, is an adviser free to work with any client? What is the process for getting approvals on new accounts? Does the firm have minimums that prevent an adviser from being paid on or working with clients below a certain account size? Is the adviser limited in discounting fees? What is the process for getting exceptions on these policies?

3. What is the ownership structure of the firm? The nature of the parent company can have a huge impact on the wealth management firm and its identity. For example, being owned by a bank, insurance company or private equity firm can have implications. How meaningful is wealth management to the parent? What advantages, opportunities or limitations are attributable to the parent?

4. Is there access to senior leaders? The ability to engage with the firm’s leadership can indicate an absence of bureaucracy and the potential for greater adviser involvement in setting policy. For instance, do advisers have an opportunity to give and receive timely input from management? Do advisers have a voice in the direction of the firm and decisions that impact them, such as investment in resources like technology? How many layers of management are there? Does local management have authority and autonomy to make meaningful decisions? And importantly, do managers advocate for the advisers?

5. Is there stability and transparency when it comes to compensation plans? Understanding the frequency and nature of changes to comp plans is important, but also key is how these changes are communicated. Are changes made to incentivize or penalize certain types of business? For example, is compensation tied to cross-selling goals or being on a team? How straightforward and understandable is the plan?

6. Do they invest in the development of next-gen talent? A firm that fosters the growth of their employees is one that is looking to build for the long term. Is the firm attracting quality next-gen talent? Does it have a strong training program? Does it help advisers identify and compensate potential successors?

7. Does the firm have an open architecture platform and the ability to customize solutions? Access to modern technology and a best-in-class platform helps to create greater efficiencies, facilitate growth and enhance the client experience. How diverse and robust are the capabilities? How easy is it to access industry-leading products and other resources? Are the offerings competitive with what’s available “on the Street?” How much flexibility is there in areas impacting the adviser? How easy is it to get exceptions? How much input do advisers have in the selection of resources?

8. Are there succession planning opportunities? With the average age of financial advisers hovering in the late 50s, it’s vital an adviser understand the pathways to monetizing his or her life’s work. Is there a program for an adviser to retire in place and create a liquidity event? How is the business valued? Are there restrictions or obligations imposed on successors?

9. What is the oversight environment like? Many advisers express frustration with an environment in which they feel more like “one of many” — where all are managed to the “lowest common denominator” based on the size or makeup of the community. Does the oversight process feel cooperative or overbearing and combative? How risk averse is the firm relative to others on the Street? Do the compliance mandates seem in line with the underlying regulatory concerns?

10. What is the stability of the adviser community? A firm may have success attracting new hires but if it is also suffering meaningful losses, this needs to be explored. Is the firm growing by recruiting or acquisition? How significant is adviser attrition and why do advisers leave? What measures are taken to retain advisers, and do they reward loyalty or discourage departures?

11. Does it “feel right”? Understanding culture is part art and part science. The art is in trusting your instincts. Do you like and respect the people representing the firm? Do individuals in different roles throughout the organization have shared values and a shared vision, and are they congruent with your own?

But the science lies in substantiating your impressions with concrete and specific information. Speak with peers who have gone through the process to understand their experiences. Ask them to share, candidly, what they should have asked and what they would have done differently. Has the firm lived up to the adviser’s expectations and the firm’s promises?  

It may seem difficult to experience culture in a socially distanced world, but it is achievable. While no one really knows what a post-COVID world will look like, we do expect that many aspects of a more virtual and digital experience will endure. This approach of asking the right objective questions to assess culture, while necessary in a virtual environment, will likely remain relevant for the future.

[More: Five questions wirehouse advisers need to ask themselves]

As a senior vice president at Diamond Consultants, Barbara Herman is a recruiter and consultant to some of the industry’s top teams and individual financial advisers.