As the largest independent advisory firms continue expanding, something unexpected has happened along the way. The typical professional at one of these firms is no longer "independent" in the sense that he or she is an owner of the business. Instead, that individual is an employee of the firm.
This trend first took hold emphatically in the 2015 InvestmentNews Adviser Compensation & Staffing Study, and it has only accelerated over the past year, according to the just-released 2017 edition of the study, sponsored by Pershing Advisor Solutions.
It makes sense. The average firm has grown 11% annually over the last 12 years, tripling in size over that time. That growth is made possible by increasing head count and improving productivity, and this trend demonstrates that many firms in the industry have successfully developed and leveraged professional talent.
While many firms, especially the largest and the fastest growing, continue to create new partners, the ability to carefully nurture productive professional talent is what will determine whether the independent advisory industry can continue to grow profitably.
One out of every five firms in the study said they are currently over their capacity limits and they need to hire. About 35% of those over-capacity firms have at least one job opening that they have not been able to fill. With their advisers already under strain from the workload, likely hemming in firms' ability to bring on new business, they are doing their best just to keep up with client service. Therefore, there's not much time left for the added effort required to recruit needed help, which ultimately would boost growth.
Most firms are left to confront a similar riddle when it comes to their human capital strategy.
Whether a large enterprise is in expansion mode or a profitable solo practice is looking for a young adviser to succeed the business, the question is: Where can talent be found?
The 2017 study asked firms to outline their hiring activity, including motivations and recruiting practices, and it paints a picture of an industry that is aggressively seeking young talent.
A majority of firms in the study hired someone during the past year. About 32% filled a newly created position and 27% hired someone to fill an existing position that opened up.
Overwhelmingly, firms preferred to hire less-experienced advisers.
Opting for young people
Most firms that engaged a new adviser in the past year opted to hire a young person, bringing on a support (level 3) or service (level 2) adviser, rather than a more expensive lead (level 1) adviser.
Lead advisers command salaries of $135,000 on median, compared to $60,000 for an entry-level support adviser, and they take twice as long to find as an entry-level support adviser. But they are more likely to bring new business to the firm and not require training.
However, lead advisers may be difficult to integrate into the existing processes and culture.
Support or entry-level advisers can also pose challenges, such as typically requiring additional investments in time and training.
Service advisers appear to be the happy medium sought by many firms. These candidates already have three to five years of experience, do not need extensive training, have a certification and are ready to hit the ground running, but they are not so advanced that cultural fit is a concern.
|Position||Average Search Time (Months)||Top Methods to Find Candidate|
|Practicing Partner||20||Direct contact to candidate||Other||N/A|
|Lead Adviser||6||Networking||Direct contact to candidate||Recruiting agency|
|Service Adviser||4.1||Networking||Direct contact to candidate||Online job posting|
|Support Adviser||3||Online job posting||Networking||Recruiting agency|
And coaching up an adviser at the firm can be one of the best means of ushering in the next generation of advisory firm partners and leaders. In the end, the needs of the firm are what will determine the best staffing strategy.
Regardless of what human capital strategies motivate firms to seek out their next adviser, or how they go about finding them, it's important to note that opportunity must be clearly communicated to the new hire.
To paraphrase Mark Tibergien, CEO of Pershing Advisor Solutions and the founder of the long-running benchmarking series this study is based on, money is only an issue after opportunity isn't addressed.
Matthew Sirinides is senior research analyst at InvestmentNews.