When most advisory firms are founded from scratch, the common business development approach is to take every prospect you possibly can. As the saying goes, “If they can fog a mirror, they’re a prospect.”
This is a logical approach when starting out, and you’re just trying to get enough revenue to keep the lights on!
As firms grow and develop a recurring revenue stream, this pressure to constantly bring in new clients dissipates somewhat. Eventually, the firm becomes established enough, the firm owners get more stringent on who they will accept as clients. Most commonly, this involves implementing minimums based on financial metrics such as assets to be managed, net worth, income, and/or potential for referrals.
Rising Minimums And Business Development By Staff Financial Planners
Over the years, this is exactly where most firms have evolved. Yet the problem is that this approach can lead to tension between a firm owner and their team members who are required to develop business. Because the new business developers are required to grow the practice with minimums that even the firm owner themselves never faced!
This scenario is further complicated by the fact that many of the financial planning staff hired in the past never had business development as part of the job description when they were originally hired.
Yet now, in an effort to sustain growth rates despite aging clientele and a depleting asset base, they are told that they will now be evaluated based on business development as well. In other words, people who were hired as technicians (minders and grinders), all of the sudden are being asked to start sourcing new clients (finders), and do so with minimums that even the founding finders never had to contend with when they started.
The Upheaval Of Changing Business Development Culture
These cultural shifts can cause great upheaval within an existing team, especially for next generation planners who feel they are being asked to do something that the firm owners did not have to do – bring in clients with lofty asset levels at the start of their career. Some firms have tried to combat this by stating that there is no business development required to keep your current position, and that it’s only required if you want to move up the career ladder and/or get future compensation raises (which is really still a backdoor way to ‘requiring’ business development).
If this dichotomy of high-minimum business development is left unaddressed for too long, resentment develops, and then eventually financial planning team members may depart. Often, they do not leave the industry, but simply go to start their own firm or join another firm that has lower or no minimums, so they have a higher likelihood of actually being able to source clients, as well as work with the clients they are passionate about serving. And unfortunately, not only are staff lost, but it is much more difficult to attract the best talent to replace those that may depart when a firm takes this path.
Hiring Financial Planners Who Can Develop Business
We find that firm owners are frequently requesting new planner hires be able to “generate” or “close” business. While this isn’t necessarily impossible, problems will emerge quickly if the firm owner defaults to evaluating a young new hire on the same standard that it took a few decades for the firm owner to reach themselves (bringing in a certain volume of high-minimum clients).
This is a very lofty expectation for a new planner role that requires business development. Especially since those who are just beginning their careers but really can bring in clients that meet your minimums may not be looking for a job either (i.e., they will have already started their own firm!).
And sadly, excess “sales” and business development pressure, even within RIAs, is one of the reasons that intelligent new and/or recent college grads bypass the profession altogether. They end out viewing financial planning as an industry that is greedy and corrupt, all about asset gathering, with no set career path, lofty expectations with very little training, and therefore not a profession with long term and rewarding prospects. Firms struggling with this should look to pivot and capitalize on the remaining opportunities for growth.
Setting A Better Path For 2016
So given all these dynamics, consider some of these thoughts when reviewing your plans for 2016 and beyond.
- Remove the requirement that your new planners and/or existing planners bring in business, or if you do, have reasonable expectations. A start would be to have them go after their peer group, which is a more level playing field, versus trying to land a client twice to three times a new planner’s age. Let your new planner source a book of clients their own age so they can grow old with them, as you have done with your clients over the years.
- Remove your minimums altogether, at least for the clients your young planners bring in. If one of your team members approaches you with a proposal or a potential prospect they want to bring aboard, seek common ground versus drawing a line in the sand.
- Revisit your fee structure and look at it objectively, versus defaulting to upstream clients only. Gauge what would be necessary with your fees and service model to accommodate the emerging affluent clientele. And if you don’t have the infrastructure to do this or don’t want to do it yourself, consider a platform such as XY Planning Network and Garrett Planning Network.
If you have a solid team, and even some individuals with inclinations towards helping the firm grow by bringing in business, be cognizant not to run them off by making demands for new clients with ‘unrealistic’ minimums. Finding such team members – who are inclined towards business development at all –are difficult to find in any talent market. Instead, attract the younger “go getter” types every firm is seeking by giving them opportunities to go out and get it, even if it is not your ideal client, and recognize that this is an opportunity for them to learn, train, and develop (as you did at a similar career stage).
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