Building a Strong Supporting Cast

By Kristen McNamara

NEW YORK (Dow Jones)—Financial advisors accustomed to running their own show can boost their performance with a strong supporting cast.

Administrative assistants, junior advisors and other team members can help advisors manage their businesses more efficiently and allow them to focus on bringing in new business and keeping current clients happy.

Hiring and compensating support staff is more prescribed at brokerage firms, where advisors are employees and the firms typically decide who gets a sales assistant. For independent advisors who run their own businesses, deciding whom and when to hire can be more confusing.

Still, the need to define roles and responsibilities clearly and treat those who work with you as valued members of your team are crucial for advisors everywhere, industry consultants say.

“It frees up the lead advisor to focus on where he or she can make the greatest impact,” Mark Tibergien, principal at accounting and consulting firm Moss Adams, says of a well-run team. “It creates leverage.”

Delegating can be difficult for some advisors, while the cost of bringing on an employee can be scary for independents, especially those just starting out.

Demand for financial advice is growing and the need to hire and manage staff effectively could become particularly important in coming years, according to recent research.

The number of registered investment advisory firms is projected to increase to more than 19,000 from the current 15,500 in the next five years, according to a study Moss Adams conducted for the Pershing Advisor Solutions unit of Bank of New York Mellon Corp. (BK). That will put pressure on business owners to attract and develop “bench-strength” to help expand their practices, the study says.

Before advisors make any hires, or ask their branch managers for additional support, they must determine where they need help. That means examining how they’re spending their time, how they should be spending it, how many and what types of clients they’re serving and whom they’d like to serve.

“It’s really thinking about what you are best at. What do you need to complement you,” says Susan Hirshman, managing director and wealth strategist at JPMorgan Chase & Co.’s (JPM) asset-management division. “The advisor who’s most efficient at running their practice has the time and ability to develop relationships.”

Hirshman and other consultants suggest advisors track how they spend their time by jotting down the tasks they perform throughout the day and the amount of time they spend on each. Hirshman suggests advisors keep a log for two weeks.

Advisors can then estimate their hourly rates by dividing their take-home pay by the hours they work. These rough calculations can help advisors see which tasks they could delegate to someone at a lower cost.

An advisor bogged down by paperwork may need an administrative or sales assistant, who can also be a key point of contact for clients. One spending too much time on portfolio analysis might want a junior planner, who could be groomed as a successor or future partner in the business. Teaming up with a peer is another option.

Tibergien, of Moss Adams, suggests advisors who are actively expanding their businesses add a staff member when they reach 80% of their projected capacity. That means advisors should have a sense of the optimal number of client relationships they can manage.

Tibergien encourages advisors to use industry benchmarking data to compare their staffing levels with practices similar to theirs.

Creating Systems

Analyzing clients’ profitability or potential to become profitable can also help advisors with staffing decisions.

Many advisors have more clients than they can effectively serve but don’t know what to do with them, says Matt Oechsli, president of the Oechsli Institute, a financial-advisory consultancy. One thing they shouldn’t do, he says, is hire a junior advisor to manage unprofitable accounts.

“You never incur additional fixed costs for nonrevenue- producing inventory,” Oechsli says.

At independent broker-dealer LPL Financial Services, Sal Zambito, senior vice president of business development, oversees a group that assists top producers with profitability and productivity. Staffing assistance is one of the top three requests the group receives from advisors, he says.

Adding another staff member often makes sense when revenues hit $300,000 to $400,000, Zambito says. As a business grows, it can achieve economies of scale and doesn’t necessarily need to bring on a new employee each time revenue reach that threshold, he says.

Support staff at brokerage and independent firms generally receive a base salary and bonus. Consultants suggest advisors who pay a bonus peg it to the behavior they’re seeking. That means businesses focused on client relationships could tie bonuses to increases in profitability, client satisfaction scores or client retention. Consultants also suggest linking bonuses to team performance.

“If you want to operate as a well-run machine where everyone feels they have a stake in the sale, give them a stake,” Hirshman says.

Advisors need to manage the expectations not only of their clients but also of their staff, Hirshman says. Does your staff understand what you want from them? Do you know what they want from you? Regular employee reviews can be an effective way to share this information, she says.

Knowing how employees work is also important, says Liz Manibay, director of coaching solutions at consulting firm Clientwise LLC. Knowing whether an assistant likes detailed instructions or just wants the big picture, for example, can help teams work more effectively, she says. Personality and behavioral tests can help with hiring and managing, though advisors must ensure they comply with relevant laws.

Advisors have their own personalities and styles, of course, but consultants say the most successful advisors empower others to keep the business running so that they can focus on building and strengthening relationships.

Mark Schoenbeck, senior vice president of professional development at Genworth Financial, who consults primarily with independent advisors, says: “Ultimately, the most profitable businesses we’ve seen are businesses in which advisors have created systems that allow them to spend as much time as possible in front of clients.”

Originally published in Dow Jones Newswires, August 2007.