The new rules of adviser compensation

Tibergien, Palaveev, Pomering Reveal Benchmarking Best Practices at InvestmentNews/Moss Adams Event

Dec 11, 2013 @ 9:21 pm

By John Sullivan

– “One of the biggest mistakes advisors make is substituting money for active business management,” Mark Tibergien, chief executive officer, Pershing Advisor Solutions.

That was just one key takeaway on running a more effective advisory firm that came out of a reunion of heavy hitting Moss Adams alumni at the 2013 InvestmentNews/Moss Adams winter compensation and staffing workshop held Las Vegas earlier this week. But it underscored a theme that arose from the 2013 InvestmentNews/Moss Adams Compensation Study: Advisory firms are larger and more complex than ever, and compensation should be viewed as a strategy, rather than a solution, for managing and enabling future growth.

The workshop, held Tuesday afternoon before the start of the 2013 MarketCounsel Summit, focused on key findings from the latest research report, which was started by Moss Adams LLP in 1999 and acquired by InvestmentNews in 2008. The 2013 InvestmentNews/Moss Adams Adviser Compensation & Staffing Study was released this fall and was produced in conjunction with The Ensemble Practice.

Brandon Odell, director of consulting services at the The Ensemble Practice, began by noting adviser industry growth over the past decade.

“As recent as 10 years ago, the typical RIA had $350,000 in revenue, three employees and one principal,” Odell said. “Today, the typical firm has $3.5 million in revenue, between seven and 13 employees and three or four partners. That's 19% to 20% compound annual growth.”

Adding that the “seeds of destruction are sown in good times,” he rhetorically asked how the industry might maintain said growth moving forward. The answer? Benchmarking, he argued, before referring back to the study.

Noted industry personality Philip Palaveev, Odell's colleague at The Ensemble Practice and a co-author of the study echoed the latter by asking if “we can take these good times and not only create success, but real value that we can sustain moving forward.” The ability to maintain a going-concern in the advisor space, he argued, is now a far more difficult challenge than constructing an investment portfolio and performing the necessary asset allocation on a client's behalf.

“As we shall see, plenty of geniuses nonetheless fail at creating lasting value,” Palaveev quipped.

Pointing to Junxure CEO Greg Freidman, Palaveev said Freidman once told him he realized he had a “real firm” when he walked out of his office and saw a client whom he had never met standing in the lobby.

“Someone had sent that client to him, and he knew he was creating something or real value.”

Palaveev concluded by revealing that the firm's in the 2013 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study are growing by an average of 14% per year, which means they will double roughly every five years.

Rebecca Pomering, CEO of Moss Adams Wealth Advisors, followed at the workshop and reinforced this point in her portion of the event, noting the firm she heads “more than doubled by a little bit in the past five years.”

“As a consultant, it's much easier to tell others what to do,” she added. “Now every time we make a move, it displaces all these other parts, so it's tougher to keep the sausage in the casing.”

In a question and answer format with InvestmentNews associate publisher Mark Bruno, Pomering noted that the structure of Moss Adams Wealth Advisors is a bit different from those in the study, in that she is the CEO of a firm but does not have her own personal book of business.

When asked by Bruno about succession planning and career projections at the firm, Pomering explained that the firm started with senior advisors and sales assistants. It then moved to a structure of senior advisors, junior advisors (mainly involved in research for the senior advisors) and sale assistants.

“We now have five levels of staffing,” she said, before adding, “it's completely changed how we recruit. If we were truly looking at how we feel a potential recruit would perform in each of the five levels, we never would have hire some of the people we did.”

Bruno then asked how the firm is finding and recruiting talent. Pomering joked that she “followed the Texas Tech people in their red shirts around at Schwab Impact, pleading with them to move to the west coast,” where the firm in located.

“I would love all of the college programs to have electronic bulletin boards for job postings,” she lamented. “The best candidates I now receive come from mass emails to clients asking if they know of anyone.”

She concluded her remarks by noting that she wished she could hire “next-gen” advisors exclusively because “the success rate is so much higher when I grow people,” as opposed to hiring more senior advisors, but she can't do it because “we're growing too fast.”

Pershing Advisor Solutions managing director and CEO Tibergien then took the stage and argued that, as business people, we're taught that “if you want a certain behavior, you must pay for it.”

“Oh really?” he sarcastically added. “Is that true of nurses, teachers and Doctors Without Boarders? No, so there must be something other than money in play.”

He added that his “fundamental belief” is that we can't motivate someone with compensation alone; we can only demotivate someone, and we must therefore “get rid of all the distractions” to let motivated people rise to the top.

“The greatest indignity you can confer on someone is expecting too little of them,” Tibergien said. “The difference between a pat on the back and a kick in the butt is a few vertebrae, and this is especially true with millennials.”

He concluded that at Pershing Advisor Solutions, no one is promoted unless they can identify as successor.

“If you can't identify that person, you're wasting my time because now I have a hole to fill. More importantly, you've broken my cardinal rule and not developed anyone.”


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