About two-and-a-half years ago, Andrew Brief took the “growth” plunge, and he hasn't looked back since. That's when Brief, who runs Andrew Brief Retirement Strategies, in Elmsford, N.Y., reckoned that the only way to significantly boost the growth of his practice — and reduce his hours — was to make what he thought would be a risky move: hire staff — more expensive, seasoned staff. Indeed, while he had employed a variety of administrative assistants to file, answer phones and perform other office tasks for most of his 11 years in business, he still found he was working longer and longer days and weekends, and struggling not to fall behind.
So, Brief realized that he had to find someone who could not only handle administrative tasks but who also held a Series 7, someone who was qualified to work with clients directly. And that meant he'd have to pay that person more than twice as much as his previous staffers. Shortly after making that move, he hired yet another assistant to help out his new administrator.
The move has paid off handsomely. Revenues have grown about 15 percent a year, to a projected $800,000 for 2006, and so have net profits — despite the fact that employee overhead increased substantially, too. He's also been able to do everything from introducing a new Web site to cutting his hours in half. “You just have to do it,” says Brief. “You have to take the risk.”
Just Do It
It's an unpleasant fact of life: Even with the most sophisticated technology available, your practice isn't going to grow significantly unless you start staffing up. Indeed, according to a 2005 study by market-research firm Cerulli Associates, there's a direct correlation between increasing assets under management and the number of staffers. Firms with $500 million to $1 billion in assets, for example, have twice as many employees as those with $250 million to $500 million in assets.
How so? You're only human. And an advisor can handle just so many clients before he or she is stretched too thin. Bringing other people on board, “frees you up so you can spend more time in front of clients,” says Stuart Silverman, president of Fusion Financial Group, an Elmsford-based producer group within NFP Securities that specializes in high-end financial planners. And that's essential to success. In fact, the more time you spend with clients, the more money you're likely to make. A recent study by Rydex AdvisorBenchmarking, an affiliate of mutual fund manager Rydex Investments, for example, showed that just one in 10 advisors spends more than 60 percent of their time with clients. But their profits were eight times more than those of people who see their clients less frequently (see Registered Rep., March 2006). “For advisors, the key to growth is capacity, and the only way to get that capacity is through staffing,” says Dennis Gallant, a principal with Gallant Distribution Consulting. That's true, in spite of the cost. You can expect to pay anywhere from 37 percent of revenues to 43 percent for total overhead costs, according to Moss Adams, a Seattle-based accounting firm that specializes in financial advisors.
But, just exactly whom you hire is another matter. “The question is what type of people to add and when to do it,” says Gallant. In some cases, what you may need is administrative or operations help, so you don't have to waste your precious time on grunt work. In others, it's another advisor. But while the answer depends, in part, on your business model — whether, say, you want to provide expertise in a few specialized areas or be more of a generalist — there also are some fairly predictable hiring touch points you can expect to hit during the life of your practice — periods when you're likely to need to bring certain types of expertise on board.
How do you know whether or not it's time to hire in the first place? If you find yourself so busy you don't have the time to bring in new clients and serve existing ones adequately, that's a key sign. But, according to Philip Palaveev, senior manager with Moss Adams, you can also figure that out using a more systematic method — before you get to a crisis point. One benchmark: If you're approaching $500,000 in revenues per advisor, it means you probably don't have enough of them. What's more, the ratio of advisor to support people should be no more than two-to-one. Aside from that, there's also the question of appropriate skill levels. “At a certain stage of development, a practice will need more specialized expertise, from research analysts to client-service specialists,” says Palaveev.
First Hire
Your initial full-time hire, most likely, will be an administrative assistant. Before that, most advisors pretty much do everything themselves, probably using a part-time helper or sharing someone else's assistant. But, after a few years — probably, though not always, when you hit about $150,000 to $200,000 in revenues, or $10 million to $15 million in assets — you'll most likely have gathered too many clients to be able to manage without more administrative help. Since it's your first significant investment in payroll, however, the move requires a big leap of faith. Consider the numbers: Salaries for support staff, not including other benefits, are 7.1 percent of revenues for firms under $250,000 in revenues, according to Moss Adams. Administrative staff salaries are 3.1 percent. Administrative staff support the practice — receptionist and office managers, for example. Support staff support the professionals — paraplanners or research analysts.
The idea behind this hire, of course, is to give you some breathing room. Your assistant will generally do a little of everything — scheduling, responding to client inquiries, handling new-account paperwork. It's not uncommon for such assistants to be licensed, so they can legally handle transactions and other questions. And while these hires tend to work out, according to Palaveev, you may need to make a few changes before you figure out just what you need. In some cases, that can take quite some time.
Consider Brief. After starting his practice in 1990, he experimented with a series of assistants. Then, after signing on with a new independent broker/dealer in 2003 — he had been affiliated with an insurance b/d — Brief realized that he needed someone with a Series 7 and 63, who could handle the majority of client questions and execute trades, as well as do a lot of the paperwork. He ended up hiring a former sales support person from a big wirehouse who was eager to join an independent firm. Then, about a year later, he decided that his assistant was too overloaded to attend to her clerical duties. So, he hired someone to help her out. He anticipates promoting her to the level of advisor in the next few years.
Next Steps
The next major decision: When is it time to hire a junior advisor? That usually happens when advisors just can't handle all their clients on their own, generally at about $500,000 to $1 million in revenues, or $50 million to $120 million in assets. It's a tough hire — and the first try often does not work out. That's partly because firms, at this point, don't have a lot to offer novice advisors. “It's difficult for small firms to create a real career path for young and talented people,” says Palaveev. “There's a lot of uncertainty associated with working for a small business.” More important is the question of compensation and responsibilities. Advisors often pay their recruits by giving them a percentage of the new-business revenue they generate. But, according to Palaveev, that's a big mistake. Unseasoned advisors, he says, shouldn't be expected to bring in new accounts. It takes advisors a good five years of development before they are ready for that. As a result, the newbie often fails.
What should you do instead? New advisors should be allowed to work on existing accounts and receive a salary, plus bonus. Ideally, says Palaveev, the best tack is to let recent recruits concentrate entirely on developing technical skills for a year before working with clients at all. (Another tack to take is to hire a mid-career advisor looking to jump from a wirehouse, someone who's an adept technician but has no flair for bringing in business). “You have to take the long-term view,” says Palaveev.
That's what Stuart Horowitz, senior partner with Andrew Stuart Asset Management Group in Coral Springs, Fla., did. Three years ago, he and his partner realized something had to give. They couldn't continue serving clients, trying to attract new accounts and doing strategic planning at the same time. The solution was to hire a recent college graduate. But, although they were impressed by the young man's obvious ability, they also realized he had little relevant experience. So, for the first year, they had him working behind the scenes, learning the basics as well as spending some time shadowing them and acting as an observer during client meetings. Eventually, they allowed him to start working with existing clients. The business now has a total of 14 employees, including five advisors. Total assets under management have grown “substantially,” says Horowitz, to a total of about $150 million.
More Advanced Support
As your practice grows, at a certain point, administrative and operational staff becomes the big issue again. That generally happens at about $3 million to $5 million in revenues, or $300 million to $800 million in assets. Your firm will probably have two to three principals, perhaps three advisors and as many as seven support people, according to Palaveev. But, with an increase in clients and a need for more efficient operations, you may suddenly find your support staff's usual duties — doing a bit of everything — doesn't cut it anymore. Instead, you have to make their jobs more specialized. “You need more depth, less breadth,” says Palaveev.
There are various ways to fine-tune duties. You can, for example, rejigger responsibilities to make one person, say, in charge of compliance processing and another client service. Horowitz took a different approach. A year ago, he revamped the organization to introduce three-person teams, each with an advisor, operations person and administrative assistant. But, when he found that his administrative personnel had distinct strengths and weaknesses — one was a pro at paperwork, for example, while another was adept at handling phone calls — he created an administrative pool. Each person is now given assignments depending on his or her strengths, doing electronic filing, say, or new client paperwork. The result, he says, is a much more efficient workflow.
Big Practice Concerns
Larger, more successful firms face another hiring challenge. At about $5 million in revenues or $800 million in assets, they encounter the need to bring in professional, full-time management. “These people run the infrastructure of the firm, overseeing operations and employees,” says Palaveev. Generally, you can expect the rest of the staff to include three principals, seven advisors and eight support people, all of whom are highly specialized.
Take KNW Group in Minneapolis. Started by three partners in 2002, the firm now has 40 employees and about $5 million in revenues, with five divisions focusing on areas like estate planning, 401(k)s and financial planning. Two years ago, the partners decided that they simply didn't have time to supervise employees in addition to their other responsibilities. They needed somebody, says Marty Nanne, a principal of KNW, “To manage the operation, oversee hiring and firing and allow the principals to develop new relationships.” So, they hired Renee Olmschenk, a former manager at several major companies, who also had a Series 7 and 63,as director of operations — in effect, to be the firm's COO. Revenues and employee size have doubled since she joined the firm.
Ultimately, at any stage of the game, you need to make hiring a regular part of your MO. That means always being on the lookout for promising talent — and acting fast when you encounter promising people. That's what Horowitz did when he interviewed his first junior advisor. Originally thinking he would look for an operations manager, he was so impressed by the candidate's abilities, he decided to make him an advisor, instead. Says Horowitz: “You have to have confidence that you're going to grow your business.”
