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Go Beyond Compensation to Keep Employees Happy

Go Beyond Compensation to Keep Employees Happy – I’m not a big fan of most advisory industry studies that come out each year for many reasons, but I can sum up the majority of my issues this way: There are a lot of different kinds of “financial advisors” in America these days, and they all have very different business models.

All advisory business models share some similarities: the need for clients, service models, compensation and revenue models, clerical support, office space, technology, marketing, etc. Yet there is a wide range of control over how they address these needs, often solving them in very different ways—and making them very different businesses.

However, most of the studies that I see don’t seem to recognize or understand these differences, lumping advisors who are employees at large corporations with those from small independents, and firms that largely generate commissions with those that only charge AUM fees. In our experience, the most useful data for any one advisory firm is collected from a group of very similar firms.

Occasionally I come across an industry study that, despite having many of the usual flaws, manages to identify an issue that is pervasive throughout the spectrum of advisory firms (and probably most businesses in general). One such study is the “2015 Trends in Advisor Compensation and Benefits” survey recently published by the Financial Planning Association and Financial Advisor IQ. While I suspect that the folks at Financial Advisor IQ do understand the wide range of business models lumped together in their results, their collaboration with the FPA, with its open forum membership, necessitated a broad range of survey participants. The good news is that there are still some important nuggets for independent advisors in their data: notably, that most owner-advisors and team leaders don’t understand what makes employees satisfied or why employees quit their jobs.

When I read an advisor survey, the first thing I look at is exactly who was polled. This survey describes its participants as “694 respondents in a range of roles within the profession.” This raises a number of red flags. While it seems hard to come up with an accurate number, the best that I can tell is that there are somewhere around 400,000 “financial advisors” in the U.S., so a shade under 700 isn’t a large sampling.

When that total is watered down into a “range of roles,” we’re not talking about many people in each category. And it truly is a range of roles: 22% of respondents are in a CEO or president role; 44% are a senior financial advisor or financial planner; 18% are junior or associate financial advisors or planners; and 11% are in non-advisor management roles like CCO or manager of operations. As titles and functions are mixed, who actually does what isn’t clear (how many CEOs and presidents are really working advisors?). It seems as if 33% of participants may not be advisors at all, while the remaining 66% clearly are. About 82% are in “senior” positions of some sort, while 18% are not.

These advisors and executives own or work in nearly every kind of advisory firm you can think of: 33% are independent RIAs, 22% work in firms affiliated with a national, regional or independent broker-dealer; 12% work in an affiliate of a hybrid RIA/broker-dealer; 10% are employed by a national or regional wirehouse; 8% are with an insurance brokerage or agency with another 8% at a bank or credit union; and 8% work in some other kind of firm. Two-thirds of these firms or teams have five or fewer advisors, while 35% have six or more advisors. Consequently, I take generalizations based on the responses from folks across all these positions in various business models with a grain of salt.

While there’s a lot of information contained in this report, in our view, the key takeaway boils down to job satisfaction: why some folks are unhappy at their firms and what they intend to do about it. The key finding of the FA IQ study is that “44% of respondents are very satisfied and 33% are somewhat satisfied with their jobs.” While 77% job satisfaction sounds like a pretty healthy number, it turns out this happy figure is one of those illusions created by lumping together different kinds of participants. When they drilled down a little deeper, the survey authors found “job satisfaction is closely correlated with role,” with 65% of CEOs saying they are very satisfied with their jobs, while only 22% of support staff agreed.

Yes, you read that right: The folks running advisory firms tend to be happy (duh!), but only about one in five support folks can say the same. In case you’re wondering how much this really matters, the survey also found that “26% of staff said they plan on leaving their firms within the next two years.” While that may sound like an inconvenience, it’s a disaster for most firms. Think about replacing one-fourth of your staff right now. Now think about doing it every two years. And if they said in a survey they were planning on leaving “within two years,” they will probably leave sooner. How would you like to replace one quarter of your employees every year? This is exactly why most advisory firms are struggling or not living up to their potential.

To make matters worse, the authors of the report found management doesn’t even have a clear idea about why staff is leaving. “Nearly two-thirds (63%) of decision makers said they have lost staff in the last five years. Among these respondents, almost half (47%) believe the employees left because they weren’t a good fit for the job; the next most likely reason, they said, was a desire to change careers. But for non-decision makers, compensation is most often given as the primary reason for leaving, followed by lack of satisfaction with the work environment. Only 3% cite fit and 6% a desire to change careers.”

The report’s authors spend a great deal of time wrestling with the idea that compensation and benefits are the driving factors behind the high level of employee dissatisfaction and attrition, but in the end, they come to the same conclusion that we did some 10 years ago. The report found that a quarter of respondents were “very satisfied” with compensation and benefits, but 44% report the same level of satisfaction with their jobs. “It is clear that satisfaction is driven by more than compensation and benefits.”

In our experience, unhappy employees will invariably point to their compensation as the major source of unhappiness, but we find that money is virtually never the real reason. It seems to be part of human nature to believe that if we just had more money (to buy more stuff), then we’d be happy. But after years of giving raises to employees in our client firms who said that would make them happy, we’ve found they usually end up leaving anyway.

Over the years, we’ve come to realize employee happiness is the result of feeling respected and valued; that their contribution to their firm matters; and that what their firm does matters, too. However, the FA IQ survey revealed that only 32% of firms offered “formal new employee training” (76% of firms offer “informal new employee training,” which in our experience translates into “no training at all”), and “internal professional development opportunities” were offered in about half the firms.

Employees in all types of firms and every kind of business want to feel appreciated, and they equate advancement and support for their jobs (being given the tools, training and technology to succeed at their jobs) with employer appreciation. That’s the message that every firm owner, team leader and manager in the advisory industry needs to hear.

ThinkAdvisor


 

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