Running a successful planning firm means not only being an effective financial planner, but also having the support of an effective staff. While a good hiring process can help to ensure that the right people are on board, the reality is that providing appropriate compensation with the right incentives can greatly facilitate the success of the firm. Yet there is much disagreement about the best way to provide incentives: should it be based on individual merit, or the revenue of the firm? Many suggest the former, noting that staff can control their individual merit more than they can impact the growth in the firm's revenue. But is it really true that staff - who are not out on the streets trying to find and develop new prospective clients - have so little impact on the revenue of the firm? Recent research suggests otherwise, as firms with revenue-based incentives nearly tripled their revenue growth from the bottom of the markets in 2008, compared to firms with merit-based bonuses. Which means in reality, your staff may impact the planning firm's revenue far more than you realize!
The inspiration for today's blog post comes from a presentation that practice management consultant Angie Herbers delivered at the 2012 AICPA PFP national conference back in January. In the session, Herbers was discussing the results of her White Paper "P4: Building Great Businesses by Creating Great Employees" and her research discoveries regarding Pay - specifically, that the most successful firms offer incentive compensation that is tied to the success of the business, ideally as revenue-based bonuses. In response, Herbers was challenged by an audience member: "Our staff aren't the ones that go out and get new clients to grow the revenue of the firm; and since our staff don't impact our revenues directly, they wouldn't be incentivized by this." Several other heads in the audience nodded in agreement.
Herbers disagreed, of course, and I similarly found myself reflecting on all of the ways that staff can absolutely impact the revenue of a firm, in ways that a principal wearing a business development hat probably never thinks about. The first half dozen that came to my mind included:
- The first person your prospects call. When a prospective client who is considering your firm calls for a first appointment, the prospect doesn't call you. The prospect calls your firm. Your staff answers the phone, has an initial interaction with the client, and only then transfers the call. Or alternatively, the staff member may be the one who actually pulls up your calendar to schedule the meeting on the spot. This interaction with your staff - not you - is often the first impression the prospect has of the quality and professionalism of the firm. If your staff is not well trained, effective on the phone, and welcoming to a prospective client, your new business - and new revenue - may be lost before you ever have a chance at a meeting.
- The first person your prospects see. Unless you sit in your own front lobby all day long waiting for your prospects and clients to arrive, you are probably not the first person your prospective clients will meet the first time they come to your office. Your staff member will be the prospect's first in-person impression of the firm. And as the research has shown, first impressions can be incredibly powerful in forming lasting opinions about an individual or business; in other words, whether we like it or not, the prospective client's first impression meeting your staff has a material impact on whether that individual ultimately agrees to become a new client for you and the firm. Which means a bad first impression experience or interaction with your staff can end your prospective client engagement - and new revenue - before it even begins.
- The new client experience. When a new client joins your firm, you may be focused on delivering a great financial plan with the best advice and wisdom for your clients. But that's not the only part of the new client experience. Signing up with a new planner often involves a number of disruptions for the client, as paperwork is completed, financial services products are purchased, accounts are transferred, etc. If your financial plan is brilliant, but the client loses sleep over two bounced checks because a money market fund was accidentally closed, and then has to take additional time to review the actions of your staff to make sure that none of the other account transfers are botched, your firm overall has done more harm than good with the new client. In the extreme, a new client who likes the advice offering may still change his/her mind and walk away entirely from a bad staff service experience.
- Who your prospects contact with new money. When your client has some new money to deposit into an investment account, who does the client call? Probably not you, personally, as you're not the one who actually handles the money and processes check deposits. Your client calls your staff. But how effective is that client's interaction with your staff? When your client has a new check to deposit, do your staff make it easy and convenient to complete the process, giving your client a positive experience? Or is depositing the check a hassle, with staff that is slow to return phone calls, making mistakes in putting money in the wrong account, or failing to communicate effectively when there's a problem or simply to confirm a completed deposit? If your clients have a negative experience completing the raw mechanics of adding money to their investment accounts, what's the risk they'll think twice about sending the next check your way?
- Who your prospects think of when referring. Most advisors I know believe that a client's decision to refer them and their firm is based primarily on their professionalism and the quality of advice that they provide. Yet the reality is that the decision to refer doesn't occur in isolation; it's based not just on quality of advice and professionalism of the advisor, but on the entire experience of being engaged with the firm. When was the last time you heard someone make a referral by stating "Well, their service really sucks, but the advice is so good you should work with the firm anyway"? The bottom line is that the service your staff provides can matter, a lot; in fact, because your clients may actually interact with your staff far more frequently than you, the service quality of your staff may actually be the first thing your client thinks about when referring. Yes, you might have regular meetings, but even those meetings are supported by half a dozen staff interactions, from scheduling the meeting, to confirming the meeting, to welcoming the client arriving at the firm, to helping with paperwork during the meeting, etc. Which means in the end, once again your staff impacts your referrability and therefore your revenue more than you may realize.
- Pulling together when times are tough. When the firm has challenges, your staff will either step up, or step back. Engaged staff that want to see the firm grow will step up; they may go out of their way to take burdens off the principals of the firm, to give them the opportunity to go out and meet with clients, or develop new prospects, to make up for difficult markets. On the other hand, disengaged and unincentivized staff may step back, responding to the pressure by doing the minimum necessary to get by and just watching out for themselves. The end result is clear: in difficult environments like the financial crisis in 2008-2009, your staff may proactively help the firm and its principals get through a rough spot, or they may disengage and leave an impossible burden on your shoulders. Which scenario will be better for your firm's revenue in the long run?
In other words, the bottom line is that while your staff may not be out on the streets trying to bring in brand new clients, your staff are still the ones who set first impressions for your prospects and impact the experience for a new first-time client. And it's not just about the fact that your staff can lose you revenue with a bad impression or experience with a new client. Your staff also are the ones who have the most ongoing service interaction with your existing clients... as those clients consider whether to give you more money/assets/revenue or refer their friends and family. Which means in reality, your staff actually impact your opportunity to get new revenue more than you may realize. And that's before we account for the fact that your staff has significant opportunity to really focus on freeing up your time to grow the business for everyone's mutual benefit, especially when times are tough... assuming they're incentivized to do so.
Of course, all of these ways that staff impacts the revenue of the business were implicitly captured in Herbers' research, which showed that firms paying merit-based bonuses averaged an 11.8% revenue recovery from the bottom in 2008 until the end of 2010, while firms paying revenue-based bonus came back an average of 34%! Simply put, revenue-based incentives to staff do matter. A lot.
So what do you think? Does your firm use revenue-based incentives for staff, or some other incentives? Have you ever been an employee under such incentive programs? What impact do you think they have?
partha iyengar says
Michael..I read the P4 report some time back and found it extremely interesting and inspiring..
What you said at the end of your blog is so true..
When we went on our local planner visit as part of our study tour in San Diego, we were highly impressed by the way WHP Financial treated us. The first thing I noticed was that Judy Hagar and Cathy’s team gave us a very warm welcome and were such great hosts in every which way..
We learnt so much about the firm’s culture and their people policies.
I think what really stood out for me and touched me and others a lot was the ‘Warm Welcome’ message put out by the front office person reporting to Cathy. She was amazing. And I believe she was the one who helped us to get a transportation arranged for us for the back to back meetings with local firms for 2 days! This helped us a lot for our group. Not to mention the fabulous and customized lunch!
If they could do for a peer professional, I can imagine the high standards for servicing their clients.
I loved this blog and shared it with many of my coworkers who I believe “don’t get it”. I am staff and I fully realize that how I present myself and everytime I open my mouth I am a direct reflection on my bosses business. I would never complain about my bonus, I am quite happy with that however what I do get in return is much more valuable than my bonus. I get a tremendous amount of respect from my boss and also his clients. I conduct myself in a manner that makes me an asset to his business and every complement I get from clients is a bonus for me. My boss does not treat me like an underling or just an employee but as a partner is his business and I believe the General Agent in our firm also does the same. I look forward to coming to work everyday and that is the biggest bonus of all.