Advisers: Staff up, then make your bid for new business

If you’ve set on a path to expand your business, you might be racking your brain trying to think of ways to attract new clients.

But maybe you should be trying to attract the right staff.

The consensus among consultants is that the decision to hire should be made when growth is projected, rather than when it occurs.

“The very best advisers hire ahead of the curve,” said Mark Tibergien, chief executive of Pershing Advisor Solutions LLC.

In fact, he said, a firm’s staff can turn out to be its most important asset under management. “Their very best employee is more important to them than their very best client,” he said.

But many advisers struggle with the hiring decision from a profitability perspective. “If they hire before they have reached capacity, they may not be able to afford the new hire,” said Kelli Cruz, director of custom research at InvestmentNews. “If they wait until after they reach capacity, it can have a negative impact on client service and employee morale.”

Whenever they decide to hire, advisers should conduct a self-assessment beforehand to determine optimum staffing levels, experts say. Owners need to figure out how much time their advisers have to spend with each client. Only after those numbers have been crunched can they determine how much more help they’ll need.

“The big thing to understand is how you define capacity for your own firm,” said Scott Slater, managing director of business consulting for Schwab Advisor Services.

A typical adviser spends about 20 hours each year with each of his or her top clients, according to Mr. Tibergien. That means an adviser can handle a maximum of 90 clients, assuming that there are 1,800 work hours in each year. A more comfortable level probably is about 70 clients.

Advisers “have to realize their physical limits and build leverage and capacity to respond to the market,” Mr. Tibergien said. “More assets don’t make your job more complicated; more clients make your job more complicated.”

Four years ago, Pershing predicted that the typical advisory firm would need to recruit and retain 11 new people by 2012 in order to meet demand.

A recent poll by Fidelity Investments bears out the projection that the investment advice sector will need to bring in new people. A survey of 335 broker-dealers and registered investment advisers who attended the company’s executive forum in May showed that 75% are planning to hire up to 30% more employees over the next year.

“Advisers are hiring again,” said David Canter, executive vice president, and head of practice management and consulting, at Fidelity. “We view [the trend] as very encouraging. We think it’s good for advisers and good for clients.”

But don’t expect your new hires to hit the ground running. Mr. Tibergien estimates that it can take 18 months for an adviser to become productive at a new firm.

John Graziano, president of Future Financial Planners Inc., hires personnel six months to a year before expected increases in business.

“Those people are going to need time to get up to speed and get comfortable while the firm is growing — rather than being thrown into the fire,” he said.

Recruiting is not a task that should be compartmentalized and addressed only when business is booming. For one thing, recruiting can be time-consuming. The hiring process, from gathering résumés through making a decision after a third round of interviews, takes about three months, according to a Schwab white paper.

“It’s harder to hire staff when you’re at capacity,” Mr. Slater said. “You have to be recruiting all the time and thinking in those terms, just as you do in business development.”

Advisers also have to determine what kind of person they want to bring on board. Whether to go after an experienced adviser — or take a gamble on a recent graduate or someone changing career paths — depends on the firm’s strategy and needs.

Of course, the veteran adviser is valued for his or her book of business — a track record that illustrates success in the field.

A preliminary result from the 2011 InvestmentNews/Moss Adams Compensation Study indicates that more than one- third of the 600-plus respondents are hiring recent college graduates into entry-level positions, Ms. Cruz said.

“A trend we are seeing is the use of paid interns to help alleviate staffing during peak periods and to “try out’ a potential new hire,” she said.

When it comes to rookies, Mr. Graziano looks for motivation, reliability and personality. One of his best recent hires was a former Rutgers University athlete.

“The person who was on the basketball team was most successful because he had the discipline and the hustle,” Mr. Graziano said. “He did what you told him to do.”

It’s the intangibles that matter the most, he said.

CAN’T TEACH HONESTY

“An honest person who is motivated can be taught the financial services business,” Mr. Graziano said. “I can’t teach someone to be honest or to be motivated.”

He does, though, have to show them the ropes at the firm. Mr. Graziano brings in new hires in groups of six and trains them as a cohort.

This approach allows the firm to achieve economies of scale in preparation and costs. It also enables the participants to learn from one another’s other’s questions and to bond.

“There’s camaraderie in a class,” Mr. Graziano said.

MENTORING HELPS

He then pairs each trainee with a more senior adviser who helps him or her acclimate. Such an arrangement can be crucial in ensuring that the new hires learn the job quickly and without missteps.

“The mentoring piece can make a huge difference,” Mr. Slater said.

John Hill, managing partner of WealthPartners LLP, also believes in pairing new advisers with experienced colleagues. Advisers begin in “sales support,” serving existing accounts and planning client reviews. They then sit in on meetings as the “second chair.” In this position, they help put together presentations and do follow-up work with clients. They advance to business development with the help of a senior adviser.

Advisory firms should consider hiring a general manager to focus on business operations, such as staff development, after reaching $750,000 in gross revenue, Mr. Tibergien said. If they do, revenue usually doubles in two to three years.

E-mail Mark Schoeff Jr. at [email protected].

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