Historically, the career path for newer financial advisors has followed a commission-based model that was focused on sales and business development first and learning the technical aspects of financial planning along the way. As the financial advisory industry has evolved, though, it has shifted to a business model that focuses more on teaching new advisors how to provide good financial planning services first, and to focus on business development later. With that shift, the timeline for how long it takes for an associate advisor to manage their own client relationships and develop new business for the firm has changed from just a few months to an average of 6 to 7 years. This shift has led the current generation of advisors to wonder if the return on investment in developing new associate advisors is worth the extended time and effort it takes to fully train them to become lead advisors.
In our 93rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explain how the time and resources it takes to elevate an associate advisor can benefit a firm, and what the current generation of new advisors can do to be successful in their roles.
As a starting point, it’s important to recognize that since many of the business models that financial advisory firms follow have become more service-oriented, determining how newer advisors can add meaningful value has also changed, as evaluating newer advisors based on the value they bring through sales and business development is no longer as relevant. Though it may take longer for associate advisors to reach a point where they will bring in their own new clients and generate revenue, they can still add value to the firm in as little as 6 months. While they are getting up to speed, associate advisors can attend meetings, take notes, input data into CRM systems and planning software, and even help prepare the financial plan. The more time spent working on such tasks helps the associate advisor to understand and learn these important processes, doing them in a way consistent with the firm culture. Because, by delegating these tasks to an associate advisor, the lead advisor can spend more time focusing on providing better service to clients by spending more face time in client meetings, prospecting for new clients, and following up more diligently with client referrals.
Ultimately, the key point is that while there may be a significant investment of time and money into training associate advisors to become lead advisors, the meaningful value they create along the way in supporting lead advisors and learning firm culture can still have a great impact on the business now, even if they aren’t generating new business for the firm right away. Because when lead advisors have the support to enable them to focus more time on developing client relationships, not only will clients be more inclined to stay, but advisors will also have the capacity to bring even more clients to the firm (and generate more revenue) along the way!
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
- Kitces Research On Advantages Of Niching In Time Use, Planning Approach, Pricing, and Productivity
- Kitces Office Hours on “How To Grow Your Paraplanner/Associate Advisor To (Eventually) Become A Lead Advisor”
Kitces & Carl Podcast Transcript
Michael: Good afternoon, Carl.
Carl: Hello. Michael. Imagine seeing you here, how crazy it is?
Michael: You seem surprised that we would bump into each other this way in a prescheduled time.
Carl: It's really funny. Whenever I call my mom, she answers, "It's me." I know she has caller ID. She has an iPhone. She answers like, "Oh, Carl." And I'm always like, well, I mean, maybe that's a sign that I don't call her enough, but it's always sort of like this surprise thing. I'm like, "Sharon, yes, it's your son."
Michael: I'm so surprised to hear your voice after seeing it on caller ID. How about that?
The Evolution Of The Financial Advisory Industry And Its Career Paths [00:48]
Carl: Exactly. Exactly. So, listen, there's this thing that comes up, and you and I have both heard this for a long time in various forms, right? And it's also something we care a lot about, next-generation advisors and...
Michael: Yes. I'm a big fan of next-generation advisors. There was a point when I was one. I think I’m the “gen,” I'm not the “next-gen” anymore, but I was the next-gen 20 years ago.
Carl: It is weird when it becomes clear that you're no longer Luke and you're more a Yoda, right? So...
Michael: Just try not to become Darth Vader, but sure.
Carl: Yeah, exactly. So these next-gen, we care about the youth and career paths. And then we get this interesting question every once in a while from the gen above, who are like, "Look, how do I develop this?" And even more cynically and maybe more realistically, even we could... And that's what I want to talk about is, is this realistic? It takes five to seven years, right? If I bring on a new advisor, and this is the question that often comes up, but we're going to break this down, whether these assumptions are even true. But I'm hoping you'll break that down for us a little bit. The question comes up, takes five to seven years to get a planner advisor, associate planner advisor or a paraplanner advisor into lead planner, right? Who's got their own clients. So it's actually quite a large investment of both time and money. Is it even worth it, right? Because what also often happens, we see this over and over, is we get to that point, entrepreneurial advisor, smart, dedicated people, working hard, want to grow, build their own business. So how do you think...? So first of all, is that even true? And how do we think about it? And how do we deal with that challenge? We're talking mainly... we may be talking to next-gen too at some point, but we're mainly talking to the people who are trying to decide. And most of them feel the same way we do, which is, I want to provide a path, right? How do you think about that?
Michael: Yeah. I love this question because frankly to me, this is the recognition of just how the career path in the industry is changing in the first place, right? The historical career path was really simple. Hiring people is easy. They're all paid on commission and they eat what they kill. So hiring people that don't work out doesn't cost you much of anything. And hiring the ones that do work out, bring in money and clients and assets and revenue, and they literally pay for themselves. Now, the problem with that is, you basically only hire people who are good at sales and business developments. They may or may not even learn to be good financial planners later. There's a lot of challenges with that.
I love this evolution we're now experiencing to the business model, where, heaven forbid, we teach them to be good financial planners first, and later, they go learn to hunt, which frankly, I think is a much more effective way to literally train a generation of professionals. I would rather, my attorney just focus on the law for the first 7 to 10 years, and learn how to get legal clients later. I'm really glad that my doctor does not have to spend 30% of her time trying to figure out how to get patients. She just focuses on doctor things. This is good for us as a profession, but it puts this burden that like, yeah, this five, seven number year I think is realistic. It's two or three years for advisors, even a strong environment to just really learn all the technical skills and how to apply them in real client situations, right? We do the book knowledge in a CFP program. Then it often takes, I find, at least two to three years to get a good number of clients and cases to come through where, you know, a senior advisor brings in the clients, brings in the data, you make the plan, do the analysis, learn to formulate recommendations, get to the point where you can craft advice. Haven't given it to anyone yet, but you've learned how to craft it. That often takes two to three years. That's like, great. Now, when you're in the meeting, I'm going to have you present that Roth conversion strategy to the clients. And if you're a next-gen advisor, the first time you have to do that and open your mouth, it's really terrifying. And then eventually, you learn a strategy and you learn how to communicate it. And then you learn how to communicate more in the relationship and more in the relationship. And at some point a senior advisor may say, "Hey, why don't you lead the next meeting with this client we worked with for a while, but you're going to lead it now. We'll see how that goes." And you get to start practicing that skill of how do I actually lead client meetings and manage client relationships. And often that's a good three to five years in and of itself for people to really practice that skill and learn to do it well.
And so, when I think about the progression of an advisor, tier one is essentially, you're a paraplanner, and your job is to practice the technical stuff, like take information, do analysis, turn it into recommendations. The next tier is an associate advisor. And your role as an associate advisor is to learn to service client relationships. So you don't have to go get them, you don't have to go hunt for them, but you got to be able to service and manage a client relationship to the point that I, as the senior advisor, or the leader, or the founder, can have confidence if I leave you with the client on your own in the meeting, like, this is going to go okay, and they're going to stay. And you have to learn that skill. When you learn that skill, you become a lead advisor. And it's often five to seven years. I think is actually a realistic expectation of how long it takes from scratch to learn the technical skills, to learn the communication skills, to learn how to manage a relationship and actually set expectations so that the client stay is on board until you get to the point where you can independently manage clients. And from there, then you can start going down the business development route, which is a whole other skill set that may come beyond year seven. And that's how you get to be a partner and an owner because you're bringing in business and making the pie bigger. And so, yeah, there's this really long path of, what if it takes five to seven years before they can manage clients on their own? Is a really long time. And take a going rate for an advisor, that's like a multi-hundred thousand dollars investment to get to the point where they can handle clients on their own. Oh, and on top of that, I run the risk that seven years from now, my young, next-generation advisor is doing great and is up, and coming and has met the love of their life, and has decided to get married and start a family. And their love of their life is from a different city, 500 miles from here. So they're moving and leaving and they're going to join a firm there. And now my seven-year talent development path just walked out the door, not out of anything, negative or malicious, just like life happens, and they met someone, who's not from around here. And now I've lost my person. And then I got to decide am I starting all over again, after having put in seven years and hundreds of thousands of dollars. So, I totally get the concern. I think that is a fair reflection of the reality with the caveat, I think we'll jump into further in a moment about how do you think about that little differently, and what might you do about it? But, yeah, I think that's a fair reflection of the challenge and the timeline.
Carl: So, what do you do? Right. Because, I mean, yeah, it’s marries the love of their, life moves away. And there's another common, like, "I want to start my own firm."
Michael: Yep. I wouldn't have done it when I started because I wasn't confident, but now I've been doing this for seven years and I feel more confident, I know my stuff. I'm starting to get known in my local market or with my peer group, who are beginning to ask me questions about money. Yeah, you totally would've done it then, but now I've got seven years of confidence. I'm ready to go do this on my own.
Carl: Yeah. And let me...before we move on to what do you do? One thing I've been a big fan of, and I don't what I'm talking about as I often say, but I'd love to...there are problems you could solve earlier on. I've always loved the idea of I guess lecturing like you do at some of the big financial planning universities. And I love people who say, "I want to start my own business right out of the gate." I love that. Now we all know...
Michael: Oh, God, I just warned them all not to. No, don't do that.
Carl: And I think those are both true. Those are both true. And it's actually way better advice not to. Way better advice. But if you're going to, the one way I think of it is I can match the questions I'm answering with my competence, right? My competence level should be 10% higher than the questions I'm addressing. So, can I help recent college grads with how to manage their debt? Could I help a recent college grad with budgeting? Yeah, probably so, right? Could I help...? So there is other paths to think about this independently, but the truth is it's a lot the way entrepreneurship is taught at universities. I thought that the data was crazy that the average age of a successful venture-backed startup is what do you guess?
Michael: You mean like the founder?
Michael: Oh, like older than most people realize. Probably...
Carl: Normally, it's like 45.
Carl: I was shocked when I read that.
Michael: Sweet. Next year I'm going to start a company.
Carl: Yeah. And I missed it by five years. But I think the point there is, it turns out that there's a lot about learning and life experience it's really important in order to go into this, to make this thing successful. So your advice of, don't do it, is the better advice. I'm just such a romantic about starting your own thing that I'm always like, "Yeah, of course. Of course. Of course." It's bad advice.
Michael: No. No, don't do it. Get a job with a salary, stay in the game, start it later. The biggest payoff is staying in the game.
Carl: Totally. That's the best advice. And I would never follow it.
Michael: Understood. Understood. That's why we appreciate you, Carl.
The Value A New Associate Advisor Can Bring To A Firm [11:11]
Carl: But I think it the best advice. So how do you think about this from the perspective of the business owner who's...? So what could I do? Let's say... Look, I hear your five, seven thing, it's going to be a real investment. A, I want to make the investment. B, I think it's really important because I want to provide a path. I want to make a difference. How do I make it? How do I get a return on that investment? What are some ways I could think about this differently?
Michael: So, here's the biggest shift that happens. When I talk to advisors that are feeling this concern, we hear it a lot. A month or two ago we did one of our office hours for the Kitces Member Section. Literally, the topic was how to...what to do to develop your associate advisor into a lead. They get past the first two or three years, they did the technical skills, and now you're trying to really get them to communication relationship management skills. And how do you do that? And as we were talking through that, literally this question came up more than once in the chat of like... So the effect of this sounds like a lot of work and it's going to take a lot of years, like just gut check. Should I... Is it even worth investing in these young people to do all this when it takes so long to get to the point that they could even be getting clients?
And to me, that's the first big driver right there is hiring advisors in your business is not about...this isn't valuable until they can bring in their own clients. Because that's the real mentality that underlies that. It's not valuable until they get to years like six and seven, because then finally they can manage a whole bunch of client relationships and start bringing in business. And that's my payoff in air, I'm doing air quotes for anybody who's listening and not watching. “That's my payoff.” And it's all built on this model that advisors in my business are only valuable when they can bring in revenue. And I get why we think that. That's how we're all trained. If you've been doing this for more than about 10 or 15 years, that's virtually certain, that's how you started, right. You worked in a firm that required you to bring in business and you brought in enough to survive. And that's why you're here today, running a larger, more successful firm. That's the point that you can hire someone. We all tend to think in that context, but I guess, just for a lack of better word, that's a sales model way of thinking. It's not a business model way of thinking. In a sales world, right, there's only two types of people, people who sell and the admins who support them. And they just like that's what most advisory firms looked like historically.
Carl: For sure.
Michael: We were in sales businesses, you either got people who could go hunt more, or you had admin staff that supported them so the hunters could go hunt more. And there was nothing in between. When you run an advisory business, particularly, when you run a recurring revenue advisory business, right, regular client base, and AUM regular client base and retainers, whatever it is. When you have a recurring revenue client base that fundamentally shifts. Because at some point you wake up on January 1st and there's a pretty good amount of revenue that's there, all you have to do is not screw it up by having clients fire you and leave. You just have to give them good service to retain them. And what that means is you start creating value in your business. And literally, why AUM firms are valued so much higher than commission-based firms is there's a natural goodwill that's built with the firm that clients will stick around if only you can make sure that you give them good service. And the reason why that matters is it doesn't cost as much to hire service people as it does to hire salespeople. And it doesn't take as long to get value from a service person as it does for training a salesperson.
So here's to me, how that mentality ultimately shifts. At the most basic level, yes, it ma y take, we'll call it an average of six years, for a new advisor gets to the point where they're able to run a client base independently and start going out and getting their own clients. But you should be getting value out of your new planning hire in six months as the business owner. Six months, if you're not getting meaningful value, this isn't working. But meaningful value is not they’re bringing in clients and revenue yet. That's not the point when you hire a younger planner or just a newer planner, doesn't even have to be age-based. It could be a career changer as well.
It starts with, they're taking all the client notes in the meetings. And not only are they taking all the client notes, but when they're taking the client notes, you don't have to take the client notes, which means you can be more focused on the client conversation. Some of us are really good at taking notes while we talk, others, not so much. So you get to be fully focused to the client. They're taking all the notes. So A, you're probably going to get better note capture than you would've done on your own unless you're a really good note-taker. B, you are more pleasant for the client, which means you're starting to deepen relationships, and you might even see attrition rates start to improve, right? That one client that you might have lost, but you were a little more present in the meeting connected with a little bit more, and you don't lose them.
Then when you get out of the meeting, you don't put the notes in the CRM, your associate advisor puts the notes in the CRM. So now you're saving the time of all the notes in the CRM. On top of that, job of your associate advisor is after every single meeting, you draft a follow-up email to the client, "Here's all the things that we discussed in the takeaways and what we're going to be working on together." We all know it's a good practice. Not a lot of us do it regularly. Certainly, not perfectly systematically. Gets a lot easier with an associate advisor. Your job is to draft every single one, and you're not going to send it on your own yet because we're working on your communication, but you're going to draft it. You're going to put it in my inbox or my CRM system or however, it's you transmit that internally. And I'm going to look at it quickly, edit it in my style, queue it up for the client, and hit send. So, now, every single client's going to get a follow-up, and I don't need to spend 10, 20, 30 minutes, or however long it takes me to draft that follow-up. I'm going to spend three minutes looking at what my associate prepared, doing some light editing, and hitting send. So now, I'm spending less time on meetings. I'm spending less time on notes. I'm doing more follow-up than I ever have before, while I'm more present in my client meetings than I ever was before. That's when growth starts to improve, right? Now, suddenly clients are feeling more connected. They're noticing the step up and service level. They're noticing the less step up and follow up. And you're spending less time on it than you were before because you don't have to take any of the notes coming out of the meeting. Someone else is doing it. Then it starts with the plans like, okay, we got a bunch of data in. Your job is to grab all that data.
Carl: Before...just hold that one because it's important. But I want to add one in here. Who better to come up with bite-size, really cool content snacks for social media use out of that meeting? So if you're also saying, "Hey, I want you to pay attention to the stories that I tell, the analogies that I've used, the comparisons that I share, how I describe asset allocation." So when you walk out, would you also come up with three tweets and two little paragraphs for LinkedIn…?
Michael: Sure. I love it.
Carl: That like, oh, and who better to start a TikTok channel? And I'm not suggesting that necessarily. I'm just saying that group of people would be way better than you. You've forgotten all the stories you used. You've forgotten all the analogies you used. You've forgotten that they're valuable. So you essentially just say to them, anytime you learn something from me, write it down in this database here, and we'll use it as tweets and LinkedIn, and Instagram, and TikTok, and Snappy Snaps, all that stuff. Then we get to planning!
Increasing Time And Capacity For Firm Growth By Hiring An Associate Advisor [19:04]
Michael: So, the second… Yeah. So, the second piece is this, now we start doing the same thing with the financial plan. I'm not the one doing the follow-up to make sure we've got all the data. My associate's doing the follow-up to make sure we've got all the data. I'm not the one entering the data in the planning software. My associate's entering into the planning software. I'm not the one doing all the analysis and crunching the scenarios, and the what-ifs, if that's still your style. My associates doing that. Now, I've still got to look at what they prepare before it goes out to a client or before I take that deliverable into a meeting. But I might take, depending on what you do, 3, 5, 10, 20 hours of a planning process and turn it into 10 to 15 hours of their time, in 2 to 3 hours of my time and review. So now, I'm saving a whole bunch of time on my notes. I'm saving a whole bunch of time on my financial plan preparation. What do I do with that time? More client meetings, heaven forbid a little bit of prospecting. Maybe now, I actually follow up a little bit more diligently on that referral because the truth deep down was I was feeling like I was drowning in my business, which means I was not actually very proactive on referrals. But now that I'm actually feeling the lift and that I could take half capacity. And if a new client came on, or heaven forbid two in a month came on, I wouldn't be like, "Oh, my gosh, please, shoot me." I can actually handle this now. The growth starts to lift up.
And when we look at that in the aggregate... We did some time studies on advisors a couple of years ago, and just looked at like how solo advisors operate and how solo advisors would support advisors operate. And the average advisor with a support advisor was ultimately handling upwards of 40% to 50% more clients with an associate. And the revenue increase was even higher than that because if you think of where your practice is today if you were to add 50% more clients, it's usually a much higher average than your current average because your current average client includes all the people you took on like 3, 5, 7, 10 years ago. Some of whom were much smaller because you were smaller. Your new clients today tend to be above the average of your long-term client base. Because we all tend to kind of drift up market over time. So a 50% increase in client base could be a 60%, 70% increase in revenue or more. And then if your AUM base, the market lifts you up from there.
And so, when you look at that over six months, that's all it should take before you're feeling material improving in your time because of the notes and the plan preparation. And maybe they're also when the client asks for a tax analysis of such and such, your associate's the one that grabs a tax return, drops in a Holistiplan, grabs the initial output, and then starts talking through it with you. So you start saving some time on analysis of clients with ongoing planning, questions, and issues as well. Six months, you start seeing a time improvement. After a few years, you could have capacity to start lifting 30%, 40%, 50% the number of clients that could lift your revenue 60%, 70% plus. And for pretty much any advisor that's out there, anywhere close to the capacity point where they're thinking about hiring an advisor, I'm pretty sure if your client count went up by 50%, your revenue went up by 70%, you would make an amazing ROI on that advisor hire for that base salary that you are going to pay them, right? It's not even close. Most of us are hiring by the time we're $200,000 of revenue, maybe $300,000 to $400,000 of revenue for an associate advisor, depending on how affluent your clients are. And so, if that's the range you're hiring and you can lift revenue 50% from there, you're talking about a $100,000, $200,000, $300,000 revenue increase for that $60,000, $70,000 person that may be in a couple of years will get raises to $80,000, $90,000, $100,000. You are massively phenomenally ahead, without them bringing in anyone. It does presume growth, but you're the business owner, the growth comes from you. The growth comes from you. And it's easier to do the growth when you've got more time for the growth, you're more engaged with clients, you're doing more proactive follow-up with clients, and you don't have that nagging thing deep down of like, "Oh, I really actually am kind of afraid more clients will say yes because I would have to do the initial planning process. And that's really time-consuming. I don't have time right now." All of that alleviates when you've got more capacity as well. And I've seen a lot of advisors go down this road. They hired the associate advisor, and all of a sudden more referrals started showing up. And the truth is, more referrals weren't just showing up, they were being more proactive with clients which engaged them better to generate referrals. And when clients just sometimes let out the little hints, the little mentions, "Oh, you know my brother's going through a bunch of stuff because he sold his company." In the past, we would've said, "Oh good for your brother." And now we're like, "Well, does your brother want to talk?" You start stepping those conversations more when you're not feeling like you're underwater and over capacity.
How New Associate Advisors Can Increase Their Value And Stand Out [23:57]
Carl: Totally. Yeah. No, that's amazing. Super, super helpful. Let's just real quickly. Let's end on, if you're the associate advisor, what are some things you think of? We could keep riffing on lists. The newsletter that needs to be written, the content project management. Geez, these systems haven't changed forever. What, you're still using DOS or Outlook? Heaven forbid. I'm just kidding.
Michael: Hey, I'm a gen Xer so don't knock my Outlook.
Carl: I know. And maybe you'll just pull it...
Michael: They're going to take it from my cold dead hands.
Carl: ...18C, your reverse polish or whatever. So what are some of the other ways you could see an assoc...? How would you approach that if you were the associate advisor saying, "Hey, what about this? What about this? What about this?"
Michael: So, you've hit on a bunch of them already, note-taking, email, follow-ups, plan analysis, plan construction, right? Just a lot of pieces that go with the planning work. Elements of social media, sometimes. Although the reality, I find for some firms to really worry about that because, at the end of the day, they've got a certain brand and tone and voice that the firm likes to communicate with, and right or wrong, they get a little nervous.
Carl: Let me...
Michael: My associate advisor may not know how to talk in the voice of the firm. So firm owners sometimes still want to control that.
Carl: And let me be clear, I'm not saying necessarily turn the reins over. I'm saying help me capture all this content that's in my head. Basically, I don't really care what the artifact of it is. Whether it's sent out on Twitter, it's an email newsletter. So many planners have so much wisdom in their heads that never see the light of day. And they're also at the same time running around saying, "I don't have any content for content marketing." Well, yes, you do. You just need somebody to capture it. So that person captures it. Then, of course, somebody who knows how to make it sound like the firm takes care of it. I'm not saying, "Hey, here's our Twitter account take over." That's bad.
Michael: Yeah. The other big one, just from the personal career development for associate advisors that I always encourage is find something in the firm that you do regularly, repetitively for clients where you can become the mini expert in the firm on that thing. Where you can get to the point where you will actually know more about the thing than the lead advisor, senior advisor, founder, owner person who hired you. You're not going to know more than about everything for a long time, but you can know more than them, about one thing relatively quickly. And that was my playbook for how I grew my career in the first two or three years that I was in the associate advisor role. This was 20 years ago in the heyday of the first generation of variable annuities with living benefit riders when they first started coming out. And so, tons of products coming out, basically tons of wholesalers constantly, reaching out to the firm and say, "We want to tell you about the new product." Lead advisors that did not have the time to fill a whole bunch of wholesaler meetings and keep track of all these different products. And so, I said, as the juniors, the associate, "Let me take all these meetings and learn about them and I'll analyze all these things for the firm." And so, I took all the wholesaler meetings. I read through the product information. I read through the prospectuses. I made these ginormous spreadsheets of just capturing all the information in one place and collecting it so that we can compare and really figure out like, hey, for this client, that's really focused on income. This is better for the client that really just wants mostly growth but just needs some floor to sleep better at night. This one's better. And so, in a span of less than six months, I became the firm's expert on all the different annuity products that were out there.
And what that did for me was I wanted to get into client meetings more, but I couldn't always get into the client meetings because a lot of the time just, firm was like, "I got this, I don't need you to take the notes." They weren't that focused on it yet. I was like, "But I got this specialized expertise thing and all the annuity product, you want me in that room because I can riff on how all these different products work." I don't know how anything about anything else yet. I didn't have much other education training yet. I knew how those products worked. And so, that got me into meetings. So I was getting the client meetings, the client exposure time. That's just so powerful for learning. And for me, I continued down that road so far. For me that literally turned into a book I ended out writing on "Advisor's Guide to Annuities" of just taking the one thing and going deeper and deeper and deeper. If you had asked me anything about anything else, would've been in deer in the headlights, I didn't know that much yet. But I found one thing I could be expert in. So maybe that's a particular product, investment offering, tax strategy, just be the hardcore Roth conversion nerd in your firm. Be the hardcore RMD nerd. Look up all the weird RMD rules for the one-off situation so that the next time you've got a client who comes in, who's got an inherited by...or retirement account from seven years ago and no one took any RMDs from it for seven years. And they're like, "Are we in trouble? Are we past the five-year rule? Is this a 10-year rule thing? Do we screw up the annual distributions?" You know the answer. And then you're going to get called into the meeting.
So whatever the thing is, find that one area that you can formulate a mini specialization for yourself. It's valuable for the firm. If you're a firm owner, you can maybe steer your associate advisor towards a particular thing they could learn on and go deep on if they're not sure what it is. But if you're an associate listening to this, find your own thing. Just look anything that comes up with some frequency in the firm is fair game.
Carl: Yeah. And the thing I was laughing at earlier is enormous spreadsheet. Bill had an enormous spreadsheet.
Michael: Yes. Oh, it was glorious.
Carl: I'm sure.
Michael: There were so many columns. It was amazing.
Carl: Oh, my God. And add to that list, I just think it's any problem, right? I was just thinking through how many pitches are the firm owner getting around marketing? Like, "Oh, you know what, why don't I meet with all the marketing people. I'll come back and walk you through the options that I see." "Why don't I research which email client I should use? Why don't I read...?"Anything that's a problem, and it's not that hard to ask that... "Hey, what's the one thing that's keeping you up at night? Or what's one problem you have, you haven't solved? I'll go research and come back with options." Any of that stuff's super smart.
Michael: But the key is not trying to become expert in all the different things that the firm does or all the different things that you can learn. You'll build that knowledge and experience over time. Find one thing you can be awesome at. It's a lot easier to become a leading expert when you make the domain of expertise really, really narrow.
Carl: Yeah. Well, and I was just trying to point out that, that domain, it could be something a little more fun for some of us than enormous spreadsheets about annuities.
Michael: Come on. Come on.
Carl: What could be possibly more fun than that?
Michael: Come with me down the nerd journey.
Carl: That would be so fun! Really?!
Michael: Or another thing if you want. That's fine.
Carl: No, I'm just kidding. I think the planning topic, right? Whether that's investing or whatever. That's super, super-valuable, right? To become valuable there. I was just thinking how fun would it be to be the marketing expert, whatever. So it's all good.
Michael: But all that to me, is built around the idea, like these are things that you get value from as a firm owner in months, in a year or two. And you know what, if you get 3, 4, 5, 6, 7 years in, and then they leave, you go get another associate advisor, and you do the process. It should only take you six months to get to a point where you're getting a positive ROI. It may even take less than that because by then you've actually created some systems about how you do this. So you're going to train the next person into a system, which means they'll probably come up even faster than the first one does when you go and do this from scratch.
And there does come crossroads when you actually get to the moment of saying, "Am I going to have this person start bringing in clients and managing their own client base, and growing the business?" Where you do have to have a separate conversation around what's the opportunity? What's the track from here? Is partnership equity on the table? What are you going to do to keep them from year 7 to year 10, 15, 20, thereafter?
But frankly, I think we put way too much pressure on the idea of hiring someone. This idea of, "Well, I can't hire an associate advisor unless they're going to be here for life. And who knows if they're going to be here for life. Therefore, I shouldn't bother." Is not the right way to think about it. There's so much value that an associate can add the firm in the same way that nurses make medical practices more successful and profitable. Paralegals make law firms more profitable. And sometimes the nurses become doctors, and sometimes the paralegals become lawyers. But you know what? Sometimes they don't and it still works great for everyone.
Carl: Yeah. No, that's super good. And really way more hopeful than I started out this conversation. You know what I mean?
Michael: Well, I'm glad I could bring you some hope, Carl.
Carl: Yeah. A little ray of sunshine from Michael Kitces.
Michael: Absolutely. And a really awesome spreadsheet. Ray of sunshine and an awesome spreadsheet.
Carl: Exactly. Cheers, Michael. Thank you.
Michael: Awesome. Thank you so much, Carl. Have a good one.
Carl: Okay. Bye.
Leo O'Connor says
My job has morphed into working on some of those improvements around the business as I see the need. I will say as the AA sees areas for improvement and areas of concerns, my recommendation is not to bring them to the LA as they are found, but to have a recurring, scheduled meeting about it so the LA is in the right headspace and can focus on what the AA is telling them. In that meeting they could also come up with a plan on what needs to be addressed and if it needs to be addressed ASAP (AA, call all the clients with IRAs without primary beneficiaries) or do you put a note on contacts with a less urgent issue so the next time they have a review it can be handled (hey, we see you are on our old fee schedule, can we just change it to this new one. Or that is an older model and we want to swap it out for this newer alternative that uses ETFs and is cheaper). For an LA that might like the way an AA does something in particular, like how they takes notes that are organized so any information can be found quickly, or the data pulled up in preparation for reviews is good, the LA should have the AA formalize what they are doing, record it, so if the AA ever leaves or maybe just another AA is added, the new AA can keep up those better habits that are now part of the firm’s processes. This is where a secondary system beyond the CRM (Like Trello or Trainual) I think can add value so you can track all the firm level projects across the whole team and see who needs to do what, who was assigned each thing, when things are due or were done, etc. I would love there to be a Facebook group for Kitces readers that want to dive into the details (tell me what fields you are using in Redtail to make sure no annual reviews are missed or that A clients are getting their 4 meeting a year) and share knowledge between each other.
Tired Citizen says
The LA needs to be sure they want to relinquish control. I worked at a firm for almost 5 years. Already had 3 security licenses and got 2 more to be able to serve in a branch manager role in his one man office. Then out of the blue with no due diligence, LA decides he is going to become an RIA. The transition was a disaster because he didn’t do any due diligence and only thought of $$. I served as the CCO with the LA saying he wanted to transition to a model where I would take over the lower two tiers of his book so he could have more time as mentioned in this interview. He paid for me to get my CFP (which isn’t cheap). He changes his mind again, and decides I’m going to became a branch of his office. Does all sorts of research as well as myself.
Then……….he changes his mind AGAIN because it would mean he was giving up any sort of absolute control over every single thing. Even got upset with me when I got some advice on whether operating a branch was a good idea for me and other things he was proposing. He only wanted me to talk to him. He also wanted me to pay top $$ for those lower two tiers when we all know the lower level of your book isn’t worth top $$. Got irate when I would take on $500,000 of debt that he thought those accounts were worth. (but then this is the same guy who pressured a guy dying of cancer to sell his small book to him – I’m not joking. Became irate when the guy wouldn’t do it.)
With all that said, you must really do your own due diligence as a potential AA. Listen to what the LA is saying. Narcissism runs wide and deep in this business. I had never dealt with it in such an in your face way. It was horrible and the best thing I did was call “checkmate” on his deranged game of chess and left almost 2 years ago. (It helps to be CCO. I was always one step ahead of him in his plans as they seemed to change daily so he could maintain control.) And if you think I’m exaggerating or bitter (well, maybe a little since when he became an RIA, I lost those 5 security licenses for him (got the main ones back. Thanks, FINRA)). he has gone through 5 employees including myself in his one man firm. You MUST as an potential AA really check out who you may work with. What sounds to good to be true often is.
Bad Advice says
Thanks, Michael and Carl, this episode was life-changing. I’ll try to make this as quick as possible. You’ve convinced me to pull the trigger and hire someone. Follow up questions (some of which were touched on, but not fully addressed):
My main interest is in teaching new advisors and consulting on the more difficult cases. Ideally, I’d like to view my practice as more of a school than a sales training program. I lean much more towards the technical aspects of helping clients and how to talk to them, as opposed to focusing on business operations and marketing. Let’s say I get Annie The Advisor to stick around for the full 7 years and now she’s a fully proficient advisor who doesn’t “need” me anymore. How do I get her to stay past that point? What continued value can I provide that would justify Annie paying me a percentage of revenue forever? I use third-party managers for all my accounts (which I see as the future of the industry), so being the resident “investment research guru” isn’t an option. Simply providing an office space and employee benefits wouldn’t cut it. Should I provide ongoing education? Would that be enough? Or would I need to eventually shift to heavily focus on business growth? Growth is a big part of being an advisor and I’m willing to learn as much of it as I can, but it’s not my passion. Would continuing education, consultation, and business development be enough to keep them around? What percentage of revenue could I expect to charge for that? Would I keep them as salary+commissions or transition them to all commission-based compensation with a percentage going to me?
15 years down the road, maybe I’d like to have a team of advisors who all specialize in a particular niche. Maybe post-retirees are handled by this advisor, young professionals are referred to that advisor. Does that kind of thing actually work or should I be aiming to have a group of advisors who are all generalists?
I’m not sure if this has been answered before or not: I want to hire future advisors who are as idealistic as I am. I would much rather hire people with no industry experience. Most of the young advisors I meet are already set in their ways and are unwilling to challenge what they’ve learned. Is there a problem with hiring with no experience, other than the fact that they’ll need more training? Should I enroll them in a Series 7/66 training program immediately upon hiring or might that be too overwhelming?