Larger advisory firms have to coordinate their people more effectively. NAPFA’s newest meeting specifically addressed those challenges.
The NAPFA Large Firm Forum, two weeks ago in Scottsdale, AZ, had an interesting theme: people. The topic is multidimensional: you want to connect with people as your clients. The efficiency of your firm depends on the coordinated efforts of your people. Large firms are uniquely suited to inorganic growth (acquisitions), and the effectiveness of the merger of two cultures is highly dependent on how the people in each firm respond to the multiple changes in circumstances.
Finally, our profession is in dire need of greater diversity—of bringing in people of color, and of providing more leadership opportunities to women.
The conference addressed each of these people issues in a keynote-only format.
Marketing to people
Interestingly, the marketing issue was addressed in the first and last session of the conference. It started with a presentation by Dr. John Evans, author of “A Genuine Persuasion System” and “The Book of WOW.” His theme was: “WOW!”
The “WOW!” concept is basically a constant search for ways to generate memorable, repeatable client experiences—basically to get your clients to say “WOW!” on occasion and give them a good story that they can use to illustrate how wonderful you are. “WOW! can be defined as a unique emotionally-engaging experience that goes far beyond expectations,” Evans said. “You want your best clients telling positive stories about you.”
As an example, he told the story of a time when he and his daughter were staying at the Ritz Carlton, and as they went up to their room, the bellman overheard them talking about a winning baseball game the daughter had participated in.
They left the hotel, came back and found, to their surprise, a small cake in the room, with a hand-written congratulatory note to the daughter on winning the ballgame. WOW!
Evans recommended that the larger firms in the audience appoint a “WOW Czar” or “Chief Experience Officer,” and hold weekly meetings that will help everyone listen attentively for opportunities create WOW! experiences. The goal is to achieve one WOW! a week across your client base, and have a growing number of your clients telling stories about your wonderfulness. This, he said, would be a far more powerful way to generate referrals than to simply ask for them at every client meeting.
Later, Evans talked about our individual “people” issues, saying that what clients want more than expertise and advice is personal humility and strength. Strength? He asked all of us in the room to quantify our emotional, mental and spiritual energy at that moment, each on a scale of 1-4—where any cumulative score below 12 means you are not dialed in to your personal mission, and anything below 7 means that you might have trouble raising your hand.
There were exercises. Evans asked everyone in the room to immediately, that moment, text a message to people in the office back home telling them something they didn’t know about us. Reports throughout the conference suggested that this opened up interesting interpersonal relationships with staff people—which is kind of remarkable since we were, at the time, in a remote location. (One imagines that this would be somewhat more powerful if the information were delivered in person.)
Another exercise was to imagine your retirement party. What do you hope people will say about you?
The final session of the conference addressed marketing from a different angle. Kristin Harad, who serves as an outsourced chief marketing officer for advisory firms, told us what we already knew: that referrals in the past were primarily word-of-mouth, which has been remarkably inefficient. Today, a growing number of referrals are made more effectively via the web: your client mentions you on social media and sends a link to your blog (or the social media teaser that links to your blog). Instead of having to remember your name and phone number, the prospect is looking at your material on your website. “Contact Us” is conveniently located on the navigation bar.
The most effective blog, Harad said, is hyper-targeted content which is tailored to your favorite clients. You want the blog to attract the clients you want to serve, and to show clients who are not in your target niche that they’ve come to the wrong place.
Each advisor can contribute to a larger firm’s overall marketing via what Harad called decentralized branding. Advisors create their own bylined blogs. Their personal profile links to the blogs, and also talks about who is a good fit for that advisor. Harad said that most personal profiles lack the ability to make a direct connection with the person who is checking you out, and recommended that each advisor not only share personal information, but also their ‘why.’
People on staff
We’ll look at M&A “people issues” in a moment, but first let’s focus on the ongoing challenge of creating a motivated team of cooperating professionals. One of the later sessions explored this issue directly, when Kelli Cruz, of the Cruz Consulting Group, offered a potentially alarming statistic. A recently-conducted survey found that, across the entire financial services landscape, roughly 29% of employees are at risk of leaving their firms in the next year or two. (WOW!)
Why? Their number one reason for dissatisfaction was the [dysfunctional] state of the work environment, but other reasons included: they wanted new challenges, and there was no opportunity for advancement. Interestingly, only 33% said they were ever asked for feedback on what is most important to them in their working environment—yet 96% said this was important. Just asking what would make the work environment better would go a long way toward raising morale; actually doing those things would, of course, be dramatically more beneficial.
According to the survey, the most valued employee benefits were, in order: a 401(k) plan (cited by 67% of the respondents), medical insurance (63%), a flexible work schedule (48%), paid time off (42%), the ability to work remotely (42%), the ability to earn equity in the firm (29%), profit sharing (23%), and professional development costs paid (23%).
Cruz offered the opinion that all jobs in your office should be eligible for incentive bonuses, and cited some things you could provide incentives for: new assets or new revenues brought into the firm, client retention, client satisfaction, company projects and personal/professional development.
In another session, Rick Schwartz, a business consultant with Expanding Horizons, offered his take on the “people” theme in a presentation about developing the next generation of leaders at your firm. Many firms, he said, don’t really have a set of criteria for the people who should be put on a fast track to become future leaders and successors to the founder.
So he offered his criteria:
1) the person must be a rock star in his/her current position.
2) the person must contribute to the business beyond his/her job function.
3) the person must be willing to work to grow the value of the firm, and to recognize that it is an asset.
4) the person must have the ability to drive business.
Later, Schwartz specified the characteristics of your top staff people: joy in their work; passion (working hard for something they love); intense intellectual curiosity; the confidence to own the room; self-awareness; a growth mindset; and good verbal and written communication skills.
These suggest certain questions you can ask in a job interview. What are you reading right now? (“No books with pop-up pictures,” Schwartz unnecessarily advised us.) You know my business. What would you do differently if you were me?
When hiring, Schwartz said, don’t create employees in your own image. Instead, give them the opportunity to develop their own career and voice. He recommended that in your mentoring activities, you meet with future leaders once a month, every month, at a scheduled two-hour period. Every month, help them pick one thing that they can get better at, and hold them accountable for improvement in that area.
Another session addressed the staff ‘people’ theme from a different direction. Mark Tibergien of BNY Mellon/Pershing and Kate Healy, of TD Ameritrade Institutional shared a panel, and Tibergien immediately took company founders to task for not allowing their younger staff to drive positive change in their firms. “For too many firms,” he said, “the desire to maintain the status quo is greater than the impetus to evolve.” (A good line.)
Most advisory firms, Tibergien told the group, don’t have a human capital plan, and the founders tend to see the staff as a cost to be managed rather than an asset to be enhanced. They have also been slow to embrace diversity—meaning specifically hiring people of color. Hiring for diversity, Tibergien said, is not only a way to broaden the firm’s cultural perspective; it may also be the best way to unlock certain growing segments of the U.S. marketplace. Already, Tibergien said, African-American consumers control assets equal to twice the size of the economy of Russia, and for Hispanic consumers, the figure is roughly three times the Russian economy.
Healy focused on some of the dynamics that are keeping people of color from joining the advisor profession. She cited TDAI research which shows that many people who might otherwise make excellent professionals don’t know that the planning career exists. Beyond that, a sizable number mistakenly believe that the career is all about math, or about paying their dues and selling.
And of course the profession is seen through the lens of Wall Street, which does not convey an ideal reputation.
On the other end, when TDAI surveyed advisory firms they found that only 36% of them are actively trying to hire diverse candidates.
Healy’s suggestion: get out in the community and talk about what it’s like to be an RIA in the real world. “When students and career changers learn what you do, their interest shoots up,” she said. Be intentional about hiring for diversity, and after you do, get people of color to talk about their life experiences, as a way to raise the firm’s cultural competency.
Healy then moderated a panel discussion on managing staff and creating diversity, and there were a couple of interesting takeaways. Janki Patel, of The Ensemble Practice, said that the very most important thing that a company founder can do is develop talented leaders throughout the firm. “I have never heard anybody complain that their firm has too many leaders,’ she said. Later, she suggested that advisory firms stop trying to hire for experience, and be willing to train their younger advisors. “I have heard stories where a firm spent 5-7 years looking for that person with 5-7 years of experience,” she said.
People in the M&A environment
M&A challenges are an issue that primarily affects larger advisory firms, and the conference addressed the potential (primarily people-related) complications that these acquisitions can trigger.
There were several sessions on this topic. The first featured presenters Greg Friedman, founder of Private Ocean in San Rafael and San Francisco, CA and Seattle, WA, and Shaun Kapusinski, Director of Technology and Operations at Sequoia Financial Group in Akron, OH, founder of the HIFON study group for operations professionals. Both have acquisition experience, and Kapusinski said that from an operations standpoint, he likes to know, earlier rather than later, whether the leaders of each firm have a unified vision of what the merged firm is going to look like. These tend to be strong-willed people who are accustomed to running their own show, so the issue is whether they can find common ground and compromise on basic issues where they might initially disagree.
Then Kapusinski needs to engage with the operations people on the other side of the transaction, to identify common ground to merge all the various activities that take place behind the scenes. “What is the dynamic of people going to be?” he asked. “We tell people, we want you to keep what made you special, so we’re not coming in to change everything.”
Friedman agreed with Kapusinski about the vision thing. “From a leadership perspective,” he said, “the number one issue is to provide the vision for the company. Everybody on both sides gets unnerved when they’re going through an acquisition, so I have to be the one to communicate the ‘why.’” As an example, he said that in his first merger experience, where his firm was joining a larger one, the staff on the other side of the transaction was periodically informed that there was going to be a merger, but not given details. “They were basically kept in the dark,” says Friedman. “When we finally came together, it was like the Hatfields and the McCoys. The other staff people were afraid of what this all meant to them.”
The second time, merging with a firm of approximately the same size, Friedman and his team interviewed every employee from the other firm. Then, he told the group, he hired a subset of the people from the other staff. That way, he never actually fired redundant employees; he simply never let them on the ship in the first place.
The pre-merger interview process also allows him to get a better sense of the hidden strengths that he might be acquiring, which can make the firm stronger. Friedman told the audience that any acquisition he does will require the acquired firm to adopt the Private Ocean brand, but the goal is to have the blended firm represent the best practices of both. “Every acquisition will change your culture a bit,” he told the audience. “Hopefully for the better.” Later he said that there is a double bonus to these interviews. “Just asking for their views,” he said, “even if I disagree with what they say, makes people feel respected.”
Kapusinski’s policy regarding employees at the acquired firm was different: retain everybody, even those who happen to occupy redundant roles at the acquiring firm, for 12 months. That gives the leadership a chance to look at their skillsets with an eye to finding different responsibilities for them in the merged firm. “If it’s a talented, passionate person,” Kapusinski told the audience, “then we want to find a spot for that person.”
The second panel featured Kapusinski and Friedman plus Tom Orecchio, CEO of Modera Wealth Management in Westwood, NJ, along with Sarah Witherspoon, Director of Wealth Management at Private Ocean. Witherspoon said that handling the cultural “people” issues becomes easier if you can create casual time to interact between the staffs. She strongly recommended that, in any acquisition process, you schedule group retreats where people from both firms can get to know each other outside the office. She also asks people in the acquired firm to take leadership roles in the integration process.
Orecchio, whose firm has completed five acquisitions, recommended that both sides get the potential ‘deal-breakers’ on the table as early as possible in the discussion. “If we get past those,” he said, “then we have a chance to move forward.” If the acquisition survives this process, he will take the next step: create 4-5 different committees that will address different issues that the firms will face during the combining process. “We have an owner on each committee,” he said, “and people from each location.”
Echoing Friedman, Orecchio said that the goal of these discussions is to borrow the best of everybody. At the end of the day, every client is served by ‘the Modera process,’ but it reflects best of breed from all the firms that have come together.
Witherspoon cautioned against assuming the integration will go smoothly simply because the other firm is using the same software. “In one of our acquisitions, we were using the same planning program, but completely differently,” she said. “Sitting in on each others’ client meetings, it was like night and day.” After a lot of discussion, both sides decided to shift to different planning software. “It made the integration much easier,” Witherspoon told the audience, “because we were all learning together.”
One touchy people issue comes up if there is a salary disparity between the firms, especially where the staff at the acquired firm is paid more for similar responsibilities. Modera’s policy, if salaries are lower across the board at the acquired firm, is to immediately raise them to Modera’s levels. If they’re higher, the other firm’s salaries will be frozen for a year while a new salary structure can be worked out.
People and Machines
NAPFA’s Large Firm Forum addressed a persistent issue in the planning realm: how do you know how much work to assign to software vs. staff? Scott Klososky, of Tricorps Technologies in Oklahoma City, OK, offered a model for determining which chores should be more tech-heavy, and which require more human involvement. The “humalogy” score for any activity could be placed on a spectrum where, at the far left, it was 100% performed by human beings (H5 on the spectrum), and then as you add technology components, you move to the right, to H4, H3 etc., to zero, and then further to the right, T1, T2… out to T5, which would be a purely robotic, machine-handled function.
What does this look like in the real world? Klososky offered the example of accounting, which has moved from hand-printed double-entry ledgers (H5) to the present, where computers mostly keep track of the inflows and outflows of capital (T4 and moving rightward). Another example is FitBit and similar devices, which monitor things that could only, previously, have been determined by counting your steps or visiting your doctor’s office. “By 2045,” Klososky predicted, “there will be accepted dependence on AI to monitor your body and make medical recommendations based on real-time data.”
How do you apply this information to an advisory practice? Klososky recommended that the firms in the room stop looking for ways to add technology, and instead try to determine the optimal balance between human and tech for each activity and process. “Not having enough tech, or trying to rely on too much tech, can be disastrous,” he said. Later he added: “humans are good at building trust and connection, while tech can work 24/7 and process more information than would be possible with a person. The heart is unique,” Klososky told the group, “but the brain can be replicated.”
People and Pricing
Pricing is a topic that has been in the news lately, particularly how it relates to the alleged “margin squeeze” at advisory firms, and how the profession can find a better match between value and pricing than the AUM model. Pricing expert Matthew Jackson, author of four pretty compelling white papers on the topic of pricing financial planning services, dove in with a way that larger advisory firms could charge directly for their value and basically write in their own profit margins.
Imagine, he said, an advisor who has a target revenue of $1,000 per hour. There are a variety of ways to accomplish this with AUM, but a graph showed what you have all seen in your own pricing models: the wealthier clients are heavily subsidizing the less wealthy. AUM is what Jackson called “pricing in a vacuum.” You are charging without knowing the internal costs of servicing any individual client.
Instead, Jackson recommends that the advisory firms start to track their time. If it takes the hypothetical advisor who wants to be paid $1,000 an hour 10 hours to complete a financial plan, then that plan should cost $10,000. If a client requires 15 hours of work over the course of the year, then that implies an annual fee of $15,000.
Of course, it isn’t that simple; with larger firms, many of the chores are handled by associate planners, and the back office and overhead expenses should be factored in. A better approach is to determine the internal cost (using time tracking for all employees, factoring in overhead) of the base minimum services that you believe every client should receive. That becomes your “C”-level service, and you charge based on your internal costs plus a profit margin.
Then you add additional (valuable) services to that package, cost out those additional services, and you know what to charge for your “B” package. Same with an “A” package.
Notice that these are not “A,” “B,” or “C” clients; the clients get to choose the package they want. And Jackson said that advisors can track hours spent going forward, so they know if a client who has chosen “C”-level service is actually taking up more of your and your staff’s time—and can raise fees accordingly.
Based on the quality of some of the presentations, I think that NAPFA’s Large Firm Forum is one of the better-kept secrets in the marketplace. It’s tricky to market a conference that primarily addresses challenges faced by ensemble firms who have to coordinate a large staff, and it’s also not easy to bring in speakers who can or will talk to such a specific segment of the audience. It will be interesting to see what NAPFA does with this annual winter meeting going forward.