Stop Creating Barriers for Your Advisors!

No one likes to invest in and develop an advisor just to watch them turn their back and walk away, but in the financial advisory business this is an all-too-common occurrence. Just last year, Merrill Lynch lost around 45 advisors who collectively managed over 18 billion in assets, and this is just one example of a disturbing trend. Large numbers of financial advisors are frequently making the decision to transition to other firms or to open independent offices of their own.

In addition, Boston based Fidelity Investments says that for every 8 advisors who retire, only 3 are trained to replace them. This scarcity of good financial advisors creates an environment in which poaching runs wild. And as we all know, developing and retaining their advisors is crucial for the success of advisory firms. How can they address this trend?

Why Advisors Leave Your Firm

Here are a few key reasons why financial advisors leave their current firm:

Shift in Needs

Advisors are often drawn to a firm because of its culture – for example, its work-life balance matches with their desires, or its values align most closely with their own. As the firm grows, the focus may shift, resulting in a general culture change. Usually, this change is perceived as a lower concern for the welfare of the advisor.

An advisor's career grows as the firm grows, and in turn, the resources needed to fill the rising demand of clients grows as well. When the same firm is unable to accommodate or meet the changing needs of their advisors, they will move to other firms.

Inadequate Support

Inadequate or nonexistent support or training in areas that directly affect financial advisors provide a good reason for them to make a switch. A financial advisor must be thorough in the work he does and align it with the services provided by his firm. However, when there’s not adequate training, it’s easy for an advisor to start feeling uncomfortable vouching for these services. This creates an incentive to move to a firm that places more emphasis on training and development.

Commission Based Compensation

Bigger firms usually offer their advisors a commission, which is around 50-60 percent of the total revenue generated by the advisor. These firms often claim that their initial and ongoing investment in an advisor results in lower commissions. On the contrary, smaller or independent firms might be able to offer a larger commission of 80-90 percent to advisors who come to them with established careers. This can be a rather compelling reason to consider jumping ship.

In addition, a number of young advisors prefer fee-based compensation over commission based compensation. A report on compensation trends from Ernst & Young says that fee-based compensation is expected to grow from 59% in 2013 to 66 % by the end of 2015.

Lack of Technological Support

Millennial advisors prefer firms that provide strong technological support to enable them to serve their clients efficiently. They prefer interacting with clients to doing tedious paperwork. As a result, advisors are drawn to firms that have moved their administrative and transactional activities from paper to digital so they can access their documents from anywhere at any point in time. While some firms are slow to adapt, those who do see an increase in both customer satisfaction and advisor satisfaction. Not providing access to the most functional technology can hurt the firm’s internal reputation and form a retention barrier.

Complicated Compliance Procedures

One of the greatest challenges for financial advisors is keeping themselves informed about the latest regulatory and compliance guidelines. As I previously discussed, it is part of the firm’s job to help build their advisors personal brand while staying in line with compliance, but this is an additional responsibility for the advisors and adds to their day-to-day work. It’s important to advisors that their firms provide them with the necessary assistance to navigate their compliance requirements. Not doing so leads to a reduction in sales and makes prospecting all the more difficult. Under such circumstances, and considering advisors are often paid on commission, they’re forced to look for a different firm that allows them to maximize their personal growth.

How to Make Them Want to Stay

There’s a question that is often put forth by clients and is pretty hard to answer by advisory firms: “what will happen if the financial advisor taking care of my portfolio plans to shift?” The same way the firm worries about losing their financial advisors, the investors worry about losing access to the people who manage their assets. A succession plan alone won’t solve the issue. What firms need is a complete plan for attracting, nurturing, and retaining their advisors. Here are some strategies to consider:

Compensation Plans

It’s very important for firms to develop strategies for incentivizing their advisors to not only join the company, but also remain there. One of the best ways to motivate advisors is by linking their pay with their performance goals. This strategy motivates advisors to give their best. To apply this strategy, companies need to have a regular performance appraisal process in place. That process should be linked to the career progression of each employee. Performance evaluations should be exhaustive, detailing the areas in which the advisors need training or coaching. In an article on Think Advisor about retaining talented advisors, Schwab Advisory Services shares that “linking pay to performance goals motivates employees to ‘strive for increased productivity and greater firmwide profits.’”

Incentives and Perks

While a base salary is usually present in a remuneration package, along with revenue-based incentives, other perks can be made available as well. Only a decade ago, advisors would receive commissions based on their sales. But now the scene is changing as more firms are introducing other incentives and perks on top of a base salary. Introducing benefit packages and non-monetary compensation has proven to be an important aspect of a retention strategy. The previously mentioned Think Advisor article shares,

“While base salary is expected for job performance, attractive compensation plans include additional incentives such as benefits packages, noncash compensation, and a formal path to partnership, which links a firm’s strategic goals with employee behavior.” 

Managing Expectations

Advisors are happy to work with any firm that addresses their expectations in a positive way. For example, a junior advisor typically likes to receive a decent amount of feedback on his work, but constant guidance might make him feel as if the firm doesn’t trust him as much as they should. Make sure that the communication between the firm and the advisor is open and clear. Let advisors know exactly what their responsibilities are and what they are not. Set a clear framework for their career goals and progression.

Talent management is a vital part of the wealth management industry. With the trends showing a willingness of advisors to move to other companies, firms must address what needs to be done to retain them. By keeping financial advisors motivated by addressing their financial, social, and behavioral needs, a firm will be able to create incentives for their financial advisors to really appreciate their place of work – and stick around.

What incentives for loyalty do you offer your advisors? Tweet @sstava to share your tips!

Steve Stava is CEO and Co-founder at Creelio, a customized content creation platform for top executives and business owners who want to tell their story and build a better first impression online through blogs and social media. Want to read more articles like this one? Check out Creelio's blog.