Advice firms need to invest in training and staff development

It’s no secret that the advice business is having trouble finding new talent to replace retiring advisers, but a new study from InvestmentNews shows just how much that is hurting the financial health of advisory firms.

Because firms can’t hire and train enough talented personnel fast enough, they are being forced to limit the number of clients they serve, as this week’s cover story explains. Nearly 90% of firms participating in IN‘s latest Compensation and Staffing Study reported that they are at or near capacity. As a result, the rate of revenue growth in the industry continues to deteriorate. In 2016, for example, median revenue grew at a rate of only 5%, down from 8% in 2015, 14% in 2014 and 16% in 2013.

That would be disturbing in and of itself, but at the same time, labor costs are soaring. At a time of 2%-3% inflation, the average annual salary for senior-level advisers is up 23%, while pay for support advisers and junior advisers rose 13% and 14%, respectively.

Too many clients

Mark Tibergien, CEO of Pershing Advisor Solutions, which sponsored the study, summed up the problem succinctly, telling senior columnist Jeff Benjamin that “this is an industry with an oversupply of clients and an undersupply of people to provide advice.”

What is the solution?

Firms are trying a number of strategies. Given the sharp rise in salaries, some are obviously throwing money at the problem, going after top talent at almost any price. That appears to be more common at firms that are in a rush to get bigger.

But it doesn’t always work. At the end of the day, the measure of a firm’s success is not how much revenue it brings in, but how much is left over in profit. As one consultant said, “The idea that building a larger firm will make you more money is an illusion, because building a larger firm will take more of your money.”

(More: Employee retention linked to career paths and training)

A better strategy seems to be one that involves hiring junior advisers, training them and helping them set out a career path. If done properly, developing a so-called “deep bench” gives staff a sense of belonging and a vested interest in the success of the firm. Training comes at a cost and it doesn’t pay dividends right away, but over the long haul, it will ensure continuity both for the firm and its clients.

Unfortunately, ongoing training and career development are woefully lacking at most advisory firms. Only half of the 353 firms that participated in the latest InvestmentNews study said they had formal training or education programs in place to develop client-service skills. The stats on business development training and imparting leadership skills were even worse.

According to TD Ameritrade International, a strong training program should involve a range of experiences, including on-the-job activities, mentoring and job shadowing, as well as formal training through continuing education and industry conferences

(More: Advice industry in hiring mode)

Just as important as the actual training is the culture of the firm. Employees coming on board should be able to tell that career development is taken seriously at the firm and is a priority for management. Training, after all, is not just a benefit for younger staff, but is an investment in the future of the firm and all of its employees.