An Overlooked Avenue of Growth For Financial Advisors
When it comes to growing a financial advisory firm, growth strategies usually land into two camps: organic and inorganic growth. Organic growth generally involves client prospecting and business development efforts while inorganic growth focuses on mergers and acquisitions. Between these two paths lies another overlooked avenue for growth for financial advisors – next generation leaders within the firm.
Next generation leaders are largely an untapped resource, or at the very least, are underutilized and under incentivized as it relates to the metrics that drive growth in a financial advisory firm. A firm with a single owner can quickly reach capacity, even with a team under them, as a single owner or leader can only do so much to drive growth on their own. An upcoming advisor who has an ownership interest in the firm will work harder, longer, and more intentionally than one whose performance isn’t tied to growing revenue and profitability. Too often advisors plug in Junior team members in order to simply manage a piece of the business. But, if the advisor is able to purchase an equity interest and tie themselves to the long-term success of the firm, they are now more incentivized to take great care of their existing client base and take a more involved role in the future growth of the firm.
The key to tapping into this overlooked resource is to pick growth minded advisors and properly align the rewards to important metrics, while properly sharing risk.
Identifying NextGen Leaders
Not every junior advisor is fit to become a potential partner in the practice. Candidates are those who are not only skilled at delivering financial services, but who possess or who can develop strong people and leadership skills. As a partner they not only need to develop new clients, they must also effectively lead and manage a team of professionals. If they don’t already have these skills, there must be a process in place for them to develop these skills. They must also care about and understand what drives revenue growth and profitability in a firm and how to evaluate business financials and reports. Professional development in these areas can be used as a prerequisite for consideration for partnership and help weed out any potentials who look good on paper but ultimately won’t deliver.
When building a path to ownership, it is important to structure incentives so that they encourage the right activity and behaviors that ultimately drive growth. There must be clear expectations and standards set, along with methods for reporting on those standards and defined penalties if they are not met. If a firm designs a compensation structure that isn’t tied to metrics that actually matter, they may find themselves overpaying junior advisors and minority partners. If compensation is tied to what matters most to the organization and not just to what the advisor wants, the advisor is more likely to do what it takes to generate new business and properly manage and serve existing clients.
Ownership in any business naturally comes with a certain amount of risk. Even minority owners, which NextGen leaders often begin as, should assume a certain portion of risk properly aligned with the rewards of ownership. Tying compensation to firm performance ensures that the advisor is only rewarded if the company does well and not rewarded if the company declines for any reason. This ensures that all owners, no matter what percentage stake they hold, are motivated to do what is needed to keep the firm growing and profitable.
Again, the firm can only grow to the extent it has enough leaders who are motivated to grow it. Building out a pipeline of next generation leaders ensures that the business is not only growing and profitable today, but that it can persist after the founder has gone. By doing so, you not only build a business, you also build a legacy. If you have a NextGen leader who is interested in buying in to the practice, contact us today to learn more about our NextGen loans program and download our NextGen loan overview.