Culture can slip as firms grow

Scaling an advisory business is no easy task, not least because of a shortage of advisory talent necessary to fuel growth. And existential threats such as fee compression, industry consolidation, technological disruption, generational shifts, regulatory concerns and heightened competition for the best clients and talent just add to the concerns. If all that doesn't make growing successfully seem difficult enough, data from InvestmentNews' inaugural class of "Best Places to Work for Financial Advisers" demonstrates that cultivating a company culture and set of benefits that maximize staff satisfaction and engagement — and ultimately retention — becomes harder to maintain as the organization grows. The data, collected in late 2017, consisted of employee responses to a survey of 78 statements. The data showed that staff of small firms were more likely to post higher rates of agreement, in aggregate — thereby resulting in a higher ranking for their firm — for all but one of the statements in the survey. As a result, the typical staff size at a firm that did not make the cut was 64, versus 45 for those that did. In the employee survey, which constituted 75% of a participating firm's score, an average of 95% of employees at small winning firms agreed with a given statement, versus 91% of employees at the largest winning firms. By contrast, the gap between winners and non-winners was 8%, or 93% average agreement with the 78 statements versus just 85% for firms that did not make the top 50. To acknowledge the differences in running businesses of these various sizes, we divided our winners into three groups.

The bigger the group, the harder to please

At smaller firms in the independent advisory industry, culture is often determined by a founding partner, and maintaining that partner's (or a small group of partners') ethos across a growing organization is a challenging exercise. The firm's purpose and values are set by example and require buy-in from other staff who, in turn, become culture ambassadors, communicating those values not just to other staff, but to clients and prospects as well. Much like a firm's service and sales, the culture must become repeatable as the business grows if the firm is also to thrive. It's no wonder, then, that as firms grow beyond the small group of charismatic, entrepreneurial founders, that culture can slip. A firm's ability to scale its unique interpersonal style and workplace policies — the flipside of quantitative performance or human capital measures — is what this initiative seeks to measure and reward.

Benefits and training gaps

One of the widest gaps involved pay and benefits. In InvestmentNews' 2017 Compensation & Staffing Study, which benchmarks similar firms, the largest advisory firms pay big compensation premiums to their staffs: for employee advisers, typically more than 30% higher than the industry average. Much of the disparity in sentiment here comes in the form of greater dissatisfaction with benefits. So perhaps there is room for larger firms to improve in that area. The statements concerning training, development and resources also had a large gap. The biggest areas of discrepancy in this category were related to opportunity for advancement and opinions about the firm's technology. Larger organizations have more mid-level employees, and if a stated career path is not well defined, staffers might feel stuck.

Regardless of the root causes, human resource development is a multi-faceted challenge that only becomes more complex as the firm grows. Superimposing the practices, ethos and culture of a successful small business upon an organization wishing to grow takes time and management resources. To deliver that culture, firms eventually rely on a management structure rather than a few charismatic founders or leaders who, in the firm's earlier days, had daily contact with most or all employees. To alleviate the pressures of organizing and implementing such policy, we see firms adding an HR manager position when there are between 35 and 40 total staff at the firm, according to the InvestmentNews Compensation & Staffing Study. About 35% of firms with more than 15 employees have such a position.

Legacy systems

When it comes to technology, larger firms are more likely to have older, more complex systems, by merit of the company's age. So perhaps legacy systems have become a burden on staff. To fuel growth, firms must hire and leverage a growing variety of talent. And in an era where capacity is constrained — 1 in 5 firms said they can't grow because "advisers are overcapacity and the firm needs to hire" — adviser retention is more pressing than ever before. Scaling firm culture is difficult, and much like the process of scaling other parts of the business, a thoughtful, strategic approach is required for success.