The adviser of the future: What to consider

The following is an excerpt from the soon-to-be-released study from Pershing Advisor Solutions, "The Advisor of the Future: Building a Business to Last."
DEC 20, 2012
The following is an excerpt from the soon-to-be-released study from Pershing Advisor Solutions, "The Advisor of the Future: Building a Business to Last." The study that aims to help the advisory industry regroup, retool and respond to the challenges that face many advisors. This report is part of a year-long series that Pershing will be developing for firms, advisors and investors to help them address the challenges they will be facing in a dynamically changing business environment. To more aggressively bridge [the talent] gap over the years ahead, shareholders must reconsider their longer-term expectations of associate and support advisors. Business development capabilities and stronger advice and relationship skills must be re-prioritized. However, this does not mean throwing them in the deep end, a common approach to encouraging new business development. Over the years ahead, shareholders and management must do more to set the stage for success. A focus on collaboration between the lead and associate advisor including joint client appointments, strategizing, collaborative advice development and co-presenting to clients will more effectively contribute to capabilities and confidence. The successful associate advisor of the future will not be relentlessly pounding the pavement alone to find new clients, being discouraged by their slow progress. Instead, these less senior advisors must be given the opportunity to learn it right the first time and increase their business development capabilities longer term while more effectively releasing the capacity of the lead advisor in the short term.

Backfill the Organizational Structure

In addition to progressing junior advisors into more senior advisory positions by emphasizing active on-the-job development, effective recruitment will be fundamental to both sustainable growth and succession for most firms. Part of the solution for any growth-oriented firm rests on backfilling the organizational structure, increasing attention to the recruitment and development of more junior talent. Philip Palaveev, Chief Executive Officer of The Ensemble Practice LLC, said he believes there is great opportunity for firms who pursue this path. As he explained, “A tremendous amount of junior advisory talent is available at relatively reasonable prices. However, while junior advisors are easier to find they are typically stronger at managing existing relationships than they are at selling.” Firms that are able to bridge this common gap in business development skills will create their own supply of future advisors. Understandably, industry executives seeking a more immediate boost to AUM may be less enthusiastic about the prospect of developing junior talent. However, a quick win, short-term solution is unlikely to address longer-term sustainability. In the past, advisory firms often met recruitment needs by relying on the movement of talent across the various affiliation models. Of independent firms surveyed in 2011, existing RIAs were identified as the most common source of new hires. Wirehouses as a source of new talent dropped from 25% to 20% between 2009 and 2011. College graduates increasing as a source of new hires are a welcome and more sustainable development. The share of new hires that were expected to be new graduates jumped from 34% to 40% between 2009 and 2011. This increase reveals a growing appreciation for acquiring and developing more junior talent, creating a more predictable and affordable talent pipeline. The benefits of hiring more junior talent with a view to long-term development and progression are extensive. For example: Skills and capabilities can be developed in line with the firm's own preferences. Investment management styles, client relationship management, service standards, levels of productivity and technical capabilities can all be more easily influenced by the recruiting firm. • Skills and capabilities can be developed in line with the firm’s own preferences. Investment management styles, client relationship management, service standards, levels of productivity and technical capabilities can all be more easily influenced by the recruiting firm. • Human capital costs can be more easily managed. Transitioning in more junior talent reduces the financial burden of a new hire relative to a senior hire and reduces risk if the hire does not work out. • Often, less experienced talent can be a helpful source of innovation as they are less ingrained in traditional ways of doing business. By contributing new ideas to process and procedure development and technology usage, new eyes on old challenges can provide valuable perspective.

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