Retaining Top-Tier Advisors: Career pathing and compensation are key

As we have noted in the past, a rapidly aging advisor population means that competition for top-tier advisor talent will continue to intensify. As a result, we expect that the poaching of high performers may soon become one of the biggest existential threats to the continued success and sustainability of your business. In response, you will need to significantly strengthen your defenses by exploring new and creative ways to retain the future leaders of your firm.

Talent is walking out the door faster than firms can bring it in. According to a recent McKinsey study:

• 39% of employees leave mainly due to insufficient career development.

• 70% of advisors who choose to leave a firm do so because they feel underutilized or undervalued.

Other studies indicate that the cost of replacing an employee—such as recruitment, training, and lost productivity—can range from 50% to an astonishing 200% of their annual salary. For advisory firms, these costs can escalate even higher given the critical nature of client relationships and the expertise required to perform the work you do.

So, what key areas should you focus on to enhance the retention and empowerment of future leaders—individuals who can drive the firm’s ongoing success and continuous innovation into the future?

Career pathing and professional growth

Career development is not just a perk—it is a necessity. McKinsey research indicates that companies with structured career pathing programs enjoy 34% higher retention rates and experience significantly greater employee engagement.

But here’s the catch: Many firms don’t provide a clear path forward, or they assume advisors will figure it out on their own. The result? Elite performers leave for firms that offer a clearer roadmap towards the future they want to achieve.

Before they even start with our firm, advisors understand precisely what will be expected of them at each level, how long it will typically take them to progress to the next level, and precisely what their compensation will be at each level.

– Jeff Brown, President of Stratos Private Wealth

For younger professionals, a clearly defined career path is a powerful retention tool that allows each advisor to continually evaluate his or her progress and understand exactly what they need to achieve to reach the next level. However, it's essential to remember that not every strong advisor will aspire to ownership or partnership. By creating multiple career paths, you can help prevent losing these uniquely valuable performers.

Let’s examine what a compelling career path looks like and how your firm can help advisors envision a long-term future within the organization.

• Understand Individual Long-Term Career Goals
  Ensure that each advisor has a written career plan and understands exactly what the path to achieving their goals entails. Too often, promises regarding the time, skills, or credentials required for advancement remain vague and implicit. However, top performers are seeking explicit and specific commitments. Just make sure you honor those commitments, or you’ll quickly see top talent leaving. Additionally, keep in mind that not everyone will desire to advance in their career; some may genuinely enjoy their current role and focus on improving in what they love doing. Therefore, take care to understand your team’s long-term aspirations.

• Invest in Developing Your Future Leaders
  I often hear founders and controlling owners lament that they didn’t get into this business to manage people. However, I remind them of the famous Jack Welch quote: “Before you are a leader, success is all about growing yourself. Once you become a leader, success is all about growing others.” Having professional development plans and empowering future leaders to grow (through continuous education and mentorship) is essential.

• Provide a Clear Pathway to Partnership
  The next generation of leaders often seeks more than just a job; they want a stake in the business. Offering pathways to partnership can be a powerful motivator. Consider implementing a tiered partnership program, similar to those found in law firms, that features both income partners and equity partners. This creates a clear path for progression and rewards commitment and performance.

Compensation, equity and the path to partnership

The financial advisory industry is shifting from traditional compensation models toward a more dynamic mix of salary, performance-based incentives, equity opportunities, and long-term wealth creation. Yet, compensation alone doesn’t create loyalty – the real game-changer is a partnership opportunity.

Firms that fail to adapt will struggle to retain top talent. In today’s market, the best advisors are no longer looking solely at salary; your high-performers will want equity, long-term wealth-building opportunities, and a clear pathway to partnership.

McKinsey’s research shows that firms with transparent equity structures and clear promotion paths see 20% higher advisor engagement and lower attrition rates. Yet, many firms still operate using a ‘black box’ model where advisors don’t know how or when they are eligible to become partners. This raises critical questions:

• When’s the right time to sell equity?

• How do you determine when a next-generation advisor will truly be ready to lead?

• What is the best way to align compensation with firm growth? What occurs if incentives do not align with growth and succession goals?

The road to partnership can take many forms. What matters most, however, is that there is a formal partnership agreement outlining the criteria for partnership, including performance benchmarks, time expectations, and buy-in requirements. Communicate the firm’s equity ownership process early and often so advisors understand what they are working toward. Additionally, consider offering partial ownership or phantom equity as an incentive to align the interests of future partners with the firm’s long-term success.

A clear pathway to equity ownership will motivate high-performing professionals to stay with your firm and work towards becoming partners, helping to reduce turnover and improve your succession planning options.

Remember that the costs associated with advisor turnover are not solely financial. They also involve the risk of losing valuable client relationships when clients choose to follow a departing advisor. To mitigate this risk, it’s crucial to ensure that multiple team members build strong personal connections with each client. Additionally, consider consulting legal counsel, such as Brian Hamburger at MarketCounsel or John Watkins at Reitler Law, about strategies to incorporate specific payment provisions in employee agreements (e.g., requiring a multiple of trailing 12-month revenue for clients who follow a departing advisor) to help protect your business.

Coaching Questions for This Article

1. What do you want your firm’s leadership team to look like five years from now, and what are you doing today to prepare your next-generation advisors to step into those roles?
2. What would you change or do differently if you were designing your compensation and career pathing model from scratch to retain top talent?
3. How might your firm proactively align equity opportunities with advisor performance and long-term commitment to create a more compelling future for the individual and the business?
4. What strategies have you implemented, or observed being implemented, that truly work for retaining top talent beyond just compensation?
   

About ClientWise LLC

ClientWise is the premier business and executive coaching firm working exclusively with financial professionals. We specialize in helping clients optimize growth and maximize revenue by engaging as a knowledgeable partner in accomplishing specific and significant business results. Our full-service coaching program empowers financial advisors, wholesalers, managers and executives to enhance performance through customized, action-oriented solutions based on each client’s specific vision and situation.

Our certified coaches are members of the International Coach Federation (ICF). They adhere to ICF’s strict code of ethics and have the experience and insight to work with you on the unique challenges and opportunities you face each day.

Drawing from an in-depth knowledge of the financial industry, ClientWise’s mission is to professionally develop industry leaders and consistently raise the bar for industry service, commitment and integrity. Simply put, our singular focus is to help you get clear, get focused, and get results.