Can your employees lead?

The recent market disruption has taught many advisory-firm leaders an important lesson: Their very best employees are more critical to success than their very best clients. This lesson was painful for some, because not all advisory firms have built organizations where high-performing individuals are permitted to grow, take on more responsibility and perhaps even lead the firm when the owners are unsure of their next move. More than ever, it is clear that leadership is a critical resource for financial advisers who wish to establish their ventures as viable businesses. The recently completed Moss Adams/ InvestmentNews Compensation and Staffing Study, which was sponsored by Pershing LLC, revealed that a large proportion of advisers were frozen in place during the turbulent time. The temporary paralysis is understandable, considering the heavy winds most firms were navigating through. But a small percentage of firms took advantage of the disruption to solidify their positions as top-notch firms for both clients and staff. These elite firms pulled out of the management dive earlier and looked ahead to where they were going. Because they understood that future growth depends on building adequate capacity, and that there remains an acute talent shortage in the advisory business, these firms — which fostered a culture of personal growth — seem best-positioned for continued success. What about other firms that made it through the crisis but are now reconsidering their leadership strategy? Will these owners step out of the way to allow new leaders to emerge, or will hungry, focused and driven upstarts nudge their way into positions of greater responsibility in new companies — possibly their own? Many advisory firms are scrambling to implement a human-capital strategy that allows them to recruit, retain and reward key people. The trick will be to identify those employees who are making a meaningful contribution and behaving like owners versus those who are content merely to have a job. Advisory-firm owners and their employees generally agree on the desirability of encouraging development; they are just a bit at odds over how to get there. In a series of workshops that Pershing and Capital Analysts Inc. recently sponsored with InvestmentNews on the subject of staffing and compensation, we heard from many firms' leaders about the challenges of reinvigorating their organization, aligning compensation with the behavior they seek, and recruiting and developing top talent. The heads of advisory firms asked three major questions: • With margins down and growth relatively flat, how can I pay my people competitively while enjoying reasonable profits in the business? • With so many people in financial services now without jobs, how do I position my business to attract quality talent to facilitate future growth? • As a small business leader, how do I create opportunities for people to grow into positions of responsibility? For those of us who participated in this discussion, the questions and answers revealed that advisory-firm owners are eager for their NextGen employees and others not in ownership positions to assert themselves as leaders and help their firm grow. But in informal discussions during workshop breaks, many non-owners expressed frustration with their bosses for not “giving” them enough opportunity to excel. It seems that both the leaders and the followers are waiting for some magical signal indicating that it is time to act. The truth is, real leaders act when confronted with difficult decisions, times of chaos or moments of crisis. They take control of the wheel when their business, family or community is adrift. The time to act is now. Sure, all advisory firms are experiencing margin squeeze, more-demanding clients and a volatile market environment. Regulatory reform will add even greater pressure. But these are areas of friction, not a wall. As leaders of organizations, we should be inviting our associates to show us if they have what it takes to transform our businesses from merely good operations to something truly superior. How will we know when the followers are ready to lead? They will demonstrate six critical characteristics: vision, decisiveness, effective people development, empathy, persuasive communication skills, and recognition of risk and the ability to manage it. Let's explore each of these. Vision. There are two types of thinkers: linear and conceptual. The linear thinker asks the question: “How do we get there more efficiently?” The conceptual thinker asks the question: “Are we heading in the right direction?” The nature of the business causes most financial firms to be led by linear thinkers. But now is the time to weigh whether your strategy is still relevant or if you need to consider your future business in different terms. To develop this vision, leaders must look at their business from four critical perspectives: • Where is the business strong? What capabilities can I build upon? • Who is my optimal client, and what should the client experience be to best serve them? • Who is attracting my optimal client and why? What can I do to distinguish my business from theirs? • How will I know I have been successful if I deploy this strategy? Decisiveness. Few things are more frustrating than working with a ditherer. Real leaders act with alacrity once they have gathered the facts and considered relevant points of view. There is nothing like a good debate to vet an issue, but people in charge must know when to close it down and make a decision. Watch behaviors in company and client meetings to see who has the ability to frame the issues, compartmentalize the decisions and propose an approach. Although consensus is often desirable, sometimes it isn't attainable; leaders need the courage of their convictions. Delegation and people development. People who grew up in an eat-what-you-kill environment often don't recognize the power of operating leverage. A common refrain is: “It's quicker and easier if I just do it myself.” This is only true once. When this approach becomes a work style, the individual will never benefit from the efforts of others and won't build a business that can function well without him. This is critically important for advisers who wish to grow. All firms are limited by their capacity to serve clients. When any one person becomes the bottleneck for what must get done, then growth in revenue and profits will come to a screeching halt. We often recommend that part of the compensation plan for individuals in leadership positions come from their effectiveness in hiring and developing other people. Empathy. There is a temptation to view our associates through a lens smudged by our blood, sweat and tears. But the degree to which we may have suffered in building our businesses is irrelevant to the people with whom we work. Great advisers relate to their clients on a very personal level. This ability should be transferred to relationships with staff members and partners, regardless of whether they shared the same experiences. When we understand that each person is unique, helping others to realize their potential becomes a powerful force. Communication. Some lead by position — rank, title or ownership. Others lead by persuasion — the ability to create a culture of commitment. The former is usually not sustainable. We often hear young associates express frustration that their point of view is not heard. Although this may be because of closed minds among leaders, it is also possible that the associate hasn't yet found a way to grab the listener's attention, make a critical observation and offer a constructive solution. Managing risk. Perhaps most critical of all leadership skills is the recognition that unmanaged growth can be as perilous as no growth at all. Much of the meltdown of the past two years came about because of financial services organizations that didn't heed signals about financial risk, operational risk, customer risk and management risk. Great leaders temper their enthusiasm for an idea with practical considerations about how much and what kind of risk is appropriate for the return expected. The challenge now is for future leaders to take advantage of this crisis and help their businesses and the industry to regain client trust and prepare for future growth. Mark Tibergien is chief executive of Pershing Advisor Solutions LLC, a subsidiary of Pershing LLC, a Bank of New York Mellon Corp. company.