Advisory firms that lack a succession plan may jeopardize their chances to recruit the best young talent, according to some industry experts.
“The larger firms are getting better at institutionalizing the process of training and development, and can tell a candidate, "Here is what we will teach you and here is the career track at the three-, five-, and 10-year mark,'” said Michael Kitces, a principal with New Planner Recruiting LLC, which specializes in placing early-career planners.
He increasingly sees the strong-est, most ambitious young candidates gravitating to these larger firms because of the well-defined opportunities.
Meanwhile, smaller firms, those with less than $200 million in assets, are less likely to have a system in place for getting new hires up to speed and participating in client relationships, Mr. Kitces said.
"ONE-OFF BASIS'
“Smaller firms are continuing to do it on a one-off basis,” said Mr. Kitces, who also is director of research planning for Pinnacle Advisory Group Inc., a private-wealth-management firm that oversees about $600 million in client assets.
It is no secret that many financial advisory firms do a poor job of planning their own future.
In fact, just 14% of firms surveyed in conjunction with a study conducted last year by the FA Insight said that they had a documented business plan for their future. Moreover, just 29% said that they had an effective means for evaluating performance and delivering performance feedback to the advisory staff.
NO INFRASTRUCTURE
Firms without a formal succession plan usually lack the infrastructure needed to train younger financial advisers to take on key client duties, Mr. Kitces said.
As a result, many senior planners worry that clients won't be comfortable working with young advisers, industry experts said.
These firms also are more likely to have higher turnover as younger advisers, frustrated by the lack of a clear career track, leave after a few years in search of greener pastures, observers said.
“Having a plan for how the structure will grow is the foundation for good people practices and progressing people towards ownership,” said Dan Inveen, a principal and director of research at FA Insight. “Being able to articulate firm structure forms a starting point for determining where people need to be at present, and how they will progress in their careers.”
To that point, about 33% of new advisers said that a path to potential ownership is important to them when choosing a firm for employment, according to a 2010 survey conducted by the Financial Planning Association.
The time for smaller firms to develop a training program for young advisers is when there is a transition from a two-adviser firm to a multiadviser model, said David John Marotta, president of Marotta Wealth Management Inc., which manages $200 million.
“You move from a silo approach to a team approach, and that requires everything to be done differently,” he said.
Mr. Marotta's firm developed training modules for each of the 36 categories of work done by its staff.
Once an adviser masters a module, such as deciding which stock to choose for a charitable donation, he or she can work directly with clients on that specific topic.
“No one wants to sit across the table from a 23-year-old and think, "This is my financial adviser?' So we have them specialize in one or two modules,” Mr. Marotta said.
This approach allows less experienced advisers to get direct experience with clients sooner, rather than waiting for years to be allowed to conduct meetings, a common source of dissatisfaction for new advisers, Mr. Kitces said.
Entry-level advisers at Legend Financial Partners Inc. learn in a module-by-module lesson plan by means of video training. The various videos cover topics that range from how to greet a client on the telephone to how to conduct a client meeting.
The firm also has a written career development plan that spells out what advisers must accomplish to move up.
Louis P. Stanasolovich, the firm's president, said that the plan has been under development for about four years.
“Everybody in the industry is saying there is no path to follow,” he said. “Well, we built the path.”
The training process helps clients, too, Mr. Stanasolovich said.
“We think by going through this process, they will be very good [young] advisers in six or seven years,” he said.
lkuykendall@investmentnews.com
