The Budget Reveals the Strategy

Most executives in high performing firms will say that their people are their greatest asset. Then you peel the onion back and look closely at the talent budget, and the truth shows up pretty fast. The question is not only how much do you spend, the better question is what does your spending reveal about the future you're trying to build within your firm?

A firm may say it wants to develop next generation leaders, build succession readiness, improve management capability, prepare the team for AI, and increase their enterprise value. Those are all great intentions. But if none of that appears in the budget, the strategy is likely more aspirational than a true commitment to an operating discipline.

Talent development has to shift from, hey, when we have time, we'll get to that training and development thing, to here's how we're going to build the firm. We're going to invest in our best people. At ClientWise, we've created something called a talent strategy operating system, which comprises 10 interconnected areas, beginning with talent strategy and investment.

The self-assessment questions are straightforward. Do we have clarity on our annual budget for talent and leadership development? Can we link measurable results to our talent investment strategy? Do we view talent development as a key strategic investment rather than an overhead cost? And does our talent budget cover AI fluency, tools, and support for adoption and how frequently do we review how well our talent strategy aligns with our growth objectives?

Now, that is the right place to start because the budget forces honesty. Let's use research from the Association for Talent Development as the benchmark for understanding how high performing firms invest in developing their people. In the 2025 state of the industry report, ATD reported that organizations invested 2.9% of revenue in learning. The highest ratio it had seen in five years. ATD also reported average direct expenditures of over $1,000 per employee and 13.7 formal learning hours per employee the year prior.

So let's be really specific. What does that mean? At 2.9%, a ten million dollar revenue firm would invest two hundred and ninety thousand dollars in learning and development. A four percent investment that same firm would invest $400,000. And at 6%, that's $600,000. A $50 million revenue firm would invest $1.45 million at the benchmark level, $2 million above the bench, and $3 million at the top quartile level.

Ray Sclafani (02:26.623)
Now that may seem uncomfortable. What's important to take away is how important it is to look really closely at your P&L. Where are you investing in your people and what results are you expecting as a result of those investments? The ATD data is not specific to wealth management, so the benchmark must be used with some judgment here. I have yet to find any credible research that indicates the percentage of revenue that the best in our business are investing in their people.

Advisory firms I know are not manufacturing companies or hospitals, banks, or technology firms, but that's exactly why the comparison here is useful. Wealth management firms compete for leadership, analytical, client service, technology, and professional talent in the broader labor market. So the market does not care that a firm has historically underinvested in development. Top talent will compare the experience of working at your firm with the experience they expect to get elsewhere.

So here's the actionable idea. Build a talent budget scorecard. I wouldn't bury it in a spreadsheet. Make it simple enough for the leadership team to understand and challenging enough to reveal the truth. Start with seven numbers. First, total annual talent development spend. Second, talent development spend as a percentage of gross revenue. Third, look at the components related to leadership development and carve out the specific dollar amount for leadership development. Fourth, what are you spending on coaching and professional development? Five, what are you spending on onboarding new employees? Six, what are you spending on AI fluency and tool adoption? Not the tools themselves or the technology budget. Let's not confuse that. Just the tool adoption and AI fluency, the training related to AI. And seven, measurable outcomes tied to that spending.

Again, the goal is not to spend for its own sake. It is to build a more capable firm and to invest in your future right now so you get ahead of what you're going to need in your bigger future. And I'd ask you to consider connecting the investment you're making today to the specific future outcomes you're hoping to achieve.

Ray Sclafani (04:52.239)
Internal promotions, for example, reduced regrettable attrition, you know, those people you don't want to lose, but end up leaving your firm for some other opportunity. Improved manager capability, higher employee engagement, stronger succession readiness, faster onboarding of new employees, improved advisor capacity, better client continuity, more consistent performance feedback, stronger adoption of AI tools. These are all good measures. Figure out what are your measures for your talent investment.

And this is where many firms are weak. They spend money on conferences, training, coaching, software, and retreats, but they don't link it back to what could really change and improve the business. It's not a budget problem, it's a discipline problem. Every dollar in the talent budget should answer one question. Which capabilities are we building?

If the firm is investing in leadership development, what should managers do better in six months? If the firm is investing in AI training, what should employees be able to do differently? If the firm is investing in career pathing, which roles should be more clear? If the firm is investing in onboarding of new employees, how should new hire productivity improve? And are we measuring that in days? If the firm is investing in coaching, what behaviors specifically, what judgments, leadership capacity should specifically improve?

This is also where leadership teams need to stop treating talent development as a discretionary expense. In a growth firm, talent development's infrastructure, it supports growth the same way technology, compliance, investment processes, and even client service do. A firm that wants to double revenue but does not invest in its managers is making a bet against itself. Unfortunately, far too many firms in our industry call themselves fiduciaries, yet their investment in developing those next generation professionals anemic, forcing alternative decisions that will impact their clients and in some cases, not for the better.

A firm that wants AI readiness but doesn't want to train its people invites uneven adoption and even hidden risks. A firm that wants retention, but offers no visible development path to people on their team is asking loyalty to simply carry too much of the weight.

Ray Sclafani (07:17.624)
The budget tells the truth. Here is the practical and actionable next step. Before your next planning cycle, have your leadership team review your current talent budget and categorize each item into one of four categories: leadership, role capability, career development, and AI readiness. Then compare that spending against your top three firm priorities. If the priorities and budget don't yet align, I wouldn't rationalize it. I just fix it.

This doesn't mean every firm needs to spend at the same level. A smaller firm may need a more targeted investment. A larger firm may need a more formal system. A faster growing firm may need to invest ahead of its revenue. A mature firm may need to invest heavily in succession planning and building its leadership bench. The point is not the exact percentage. It's just about getting aligned. Your budget should reveal the firm you're building, not the firm you once were.

And I would use that 2.9% or the 4% or 6% of gross revenues just as a benchmark, compare your firms against the bench.

Okay, few coaching questions for reflection. First, what does your current talent budget reveal about what your firm actually believes? Two, where are you expecting future growth from the people you're underinvesting in today? Three, what measurable business outcome should your talent investment deliver over the next 12 months? How would your budget change if talent development were treated as a firm's infrastructure? And five, what capability must your firm build now so it is not constrained three years from now?

Hey, so thanks for listening. Please like and share this episode with someone you know needs to hear it.