At every financial services conference, you hear complaints about all those clients who never managed to get around to implementing the fancy, creative, tax-saving estate plans that their advisor created for them. But are financial planners any better?
Consider the statistics. Cerulli Associates estimates that the average financial advisor is now 52 years old. Roughly 20% are over 60 and have been in the shadow of retirement for some time. Yet the most recent Moss Adams report found that only 10.3% of advisory firms in a broad survey have a well-defined succession plan and are taking steps to make it happen. Another 18.4% report that, while they may have such a plan, they haven't yet gotten around to implementing it.
These are alarming statistics for a profession whose core service is retirement planning. It's a bit like saying that only 10.3% of doctors have quit smoking and started losing weight, and another 18.4% of them intend to get around to both at some point in the future.
What could possibly be going on with that other 70% percent?
The obstacles to succession planning
This issue is going to be addressed at the Business & Wealth Management Forum in September, both indirectly – with an intense 75-minute session practice management presentation by Rebecca Pomering of Moss Adams and Cheryl Holland of Abacus Planning Group – and very directly in a presentation by Holland and psychologist and practice dynamics consultant James Grubman. Grubman has worked with some of the top advisory firms in the country on their succession issues, both as a consultant to the owners and a hands-on staff trainer. The most formidable succession obstacles he finds may sound familiar to anyone who has dealt with a client reluctant to pull the trigger on an estate plan: The numbers work, but there are myriad psychological issues that nobody knows how to address.
Such as? An effective transition plan requires advisors to undertake several big-picture changes at once. First, before they can hand over the keys, they have to transform a practice into a business – a self-sufficient entity that can operate successfully without its founder's presence.
"Many of the most successful advisory firms are strong at the top," says Grubman, "with most of the skills and knowledge residing with the founder/owner." These firms may be less strong at the staff level, he says, in part because the founder/owners followed the conventional wisdom: They hired people who have "complementary skills." That sounds innocent enough, until you realize that "complementary skills" means hiring people who can do everything except the rainmaking and client-facing activities that the owner/advisor brings to the table. When the advisor goes home at night, all the expertise in the business's two most important activities walks out with her.
For this reason, the dramatic change in mindset – from being the heart of a practice to acting as steward of a business – is toughest for the most successful advisors, Grubman says. Instead of balancing their own strengths with complementary staff members, transitioning advisors suddenly have to start doing the opposite: take themselves out of the processes and procedures of the office, trust others to take on the role of boss and primary do-er of tasks, and become more of a coach and a mentor. An advisor has to trust employees to perform tasks that he or she has successfully handled for years. At the same time, the staff members have to be just as willing to embrace their new roles.
This is the first and most powerful obstacle to succession planning. Advisors are unlikely to feel comfortable about giving up their marketing and client-facing roles until and unless they see untrained staff members – who were hired to do other things – step up and start taking over those functions.
Is your ego in the way?
At the same time, the advisor may be held back by a more personal psychological hurdle. Many (perhaps most) founding advisors have a lot of their self-identity – that is, their self esteem or their ego – bound up in controlling the activities of their firm. As the go-to person, they play a visibly crucial role that can feel very satisfying. If they give up that "go-to" distinction, what else goes with it? "For the charismatic, successful person at the head of the firm, this transition may feel like giving up an important part of their identity," Grubman explains.
This is the source of a lot of vague misgivings that you hear from advisors about their practices "getting bigger." On some level, probably unconsciously, they are concerned that as the firm grows and becomes more self-sustaining – less centered around their personal skills – they become less special or important. Until an advisor recognizes this misgiving and faces it squarely, he or she is likely going to remain among the 90% of advisors who haven't implemented a succession plan.
Interestingly, Grubman doesn't usually start his consulting activities by focusing on the advisor's ego issues. Instead, he starts with staff training, on the theory that advisors need to see their staff acquiring those client relationship skills before they (the advisors) can start facing down their own ego-driven reservations. Client-facing skills are often the most difficult for an advisor to teach, because they are deeply innate; Grubman says that telling an advisor to pass on these soft skills to his staff is a little like asking a fish to teach somebody how to swim.
"Probably more than many of my colleagues, I do an awful lot of role-playing of client scenarios," Grubman says. "Most advisors roll their eyes and groan when we talk about role-playing, but they invariably walk away having gained the most by actually doing it."
The focus of Grubman’s hands-on training is staff advisors, but, interestingly, the founder/owners of a practice often learn a few things themselves while carrying them out. In one example Grubman related to me, Grubman recalls that he once asked a highly successful advisor to role-play the financially clueless wife of a male client. Another advisor in the exercise talked to her about how and why the markets were tanking. "Afterwards, she was just stunned," says Grubman. "The other advisor had spoken with a lot of jargon, and was a bit condescending and sales-oriented. … She said, ‘I never would have seen that with the same eyes if I wasn't playing the client.’"
Staff advisors are given an training worthy of a psychologist in communication techniques like active listening in prospect meetings, understanding what clients really want from an advisor, helping clients cope with grief, dealing with couples, and more, Grubman believes – all of which, of course, are the key marketing and client management skills that represent the firm's core service. "As a psychologist, I tell the younger advisors about things that they may not yet have experienced," says Grubman. "I try to help them understand what the client may be going through in a way that maybe they have not, themselves, experienced yet."
For young advisors who may have trouble relating to client challenges, he will look for relevant examples in the staff advisor's family history, where there may have been particular struggles whose lessons can be extrapolated more broadly. "I had a student once whose parents owned a jewelry business, and they were pressuring him to go into it," says Grubman. "He broke away to become a financial planner. He doesn't have experience counseling people. But because he had been on the receiving end of a pretty intense family business dynamic, he was able to relate to some of the challenges he encounters with clients."
As advisors become more confident with their client-facing skills, Grubman tries to bring the founder/owner's internal conflict to the surface. How can she make herself less of a decision bottleneck and still remain important? What other role could he play that is relevant or even crucial to the firm, but which facilitates (rather than blocks) the transition from a practice to a viable business?
"Here, my role is putting into words something that they may have understood only on a gut level, and had a hard time putting their finger on," Grubman explains. "It is also working on helping them understand that they can still be very necessary to the firm, but just in a different way than they used to be."
This transition is easy to talk about, but very difficult to accomplish. Instead of doing most of the work and supervising the rest of it, the advisor comes into the office ready to encourage the growth and development of others in the firm.
"To grossly oversimplify it," Grubman says, "instead of it all being, come to me and I'll tell you what to do, or give you the answer to that, it is: let me teach you more, so that you can do it yourself. The principal needs to shift from being the leader and repository of the firm's knowledge and skills," he adds, "to being somebody who distributes those skills and that knowledge into the firm."
Redefining the owner’s role in the business
As the founder/owners accept this role, they may realize Grubman’s consulting work offers them a workable model to follow. Grubman makes an effort, through his own work, to demonstrate how to play that mentor role and to make the nebulous concept of "coaching and mentoring" less abstract. (How many times have you read somewhere that you should be "mentoring" your staff? How many times have those articles told you how to do it?)
Many principals soon realize that this new role is not nearly as hard as they imagined. You don't have to develop some kind of curriculum in order to pass on what you know. The staff already, routinely, comes to you for decisions and direction. The teaching opportunities come to you.
Advisors are often surprised by what they discover about themselves, as well. "Often as we get into these issues, particularly with advisors who are a bit older and thinking about transition, they realize that they were starting to get tired of always having to do everything, and always the same things for 20 or 30 years,” Grubman says. “When they step into this new role, encouraging the development of management and client skills, it starts to reenergize them. It often dovetails with where they are in life, wanting that new challenge, that different responsibility."
Another surprise benefit they get from this shift is dramatically greater loyalty among their staff. "There is this mysterious form of turnover, which starts to happen because the principal doesn't understand that people need to be motivated, not just by money, or even, in a certain way, by performance," Grubman explains. "They can get that in many places. People are most highly motivated by the opportunity for growth, by the opportunity for leadership, in the development of their skills, even including those management skills we've been talking about.”
“More than that," he adds, "they want somebody to take an interest in their evolution."
When staff are mentored, with the company principal taking an active interest in their development, turnover becomes a problem of the past. The staff displays new motivation to take on new responsibilities.
"If you think about it, this is the same dynamic that we've seen with good client relationships," says Grubman. "You can do a great job of performance for clients, but they might still leave you if the relationship is not tended properly. Those advisors who pay attention to the staff relationships, and address their needs emotionally, will get much higher levels, not just of satisfaction, but of loyalty."
I’m sure almost everyone reading this has heard Pershing Advisor Services CEO Mark Tibergien talk about viewing your staff as an investment rather than a cost. I think most of us understood this advice in financial terms. But Grubman says that staff should not even be primarily a financial investment; the investment should be personal.
The goal of the transition, of course, is to have less work performed by the founder/owner. As staff becomes more competent and confident, and as the founder/owner becomes less crucial to the day-to-day operations, the value of the planning practice will rise dramatically. The advisor's firm becomes increasingly valuable as mentoring becomes more effective.
Of course, this is an idealized view of how the process works; there are always at least a few obstacles along the way. One of the most difficult occurs when key employees are not willing recipients of mentoring or cling stubbornly to the dysfunctional status quo. "I find that sometimes firms have not done very good hiring," says Grubman. "They have started to collect people who may not have been good choices in the beginning, while the staff members who were really good may have gone on elsewhere."
Preparing your firm for succession
When a practice brings him in, Grubman will do a staff review for the founder/owner, but the process itself can sometimes be more revealing than the final assessment that comes out of it. In firms where the founder/owner rules with an especially tight fist, Grubman says, the first challenge is to encourage the staff people to actually believe that there is going to be positive change. "You may have people who simply don't have any reason to expect that they're going to be empowered or encouraged," he says. "Sometimes, they're afraid to believe."
The best cure for this skepticism is having upper management truly start listening to the people on staff. In many of his engagements, Grubman will help the owner create more opportunities for genuine interaction: brown bag lunches, more open staff meetings, more one-on-one mentoring activities, and quarterly (rather than annual) staff retreats. "Changing the nature of those normal interactions can have a lot of positive effects all by itself," Grubman explains.
Of course, there may still be people who really don't want more responsibility. With these, the founder/owner needs to make some decisions about who to keep and who to let go. Meanwhile, Grubman will often help the founder/owner revamp the hiring process, replacing the usual "where did you go to school, where have you worked, what are your goals" – to a more powerful behavioral interview format: "What would you do with clients if they came in with a certain problem and portfolio allocation?"
Sometimes, either in first-round or later-round interviews, the owner may role-play with the prospective hire. "You want them to describe situations they've been in and how they handled them, getting deeper into how they think, their experience and expertise in managing an actual client relationship,” Grubman says. “It moves you away from knowledge toward skill, which is something that I tend to emphasize in my consulting. Over and over again you find that skill makes the difference, not just knowledge."
As he's worked with advisory firms over the years, Grubman has developed a database that collects and analyzes the results of different emotional intelligence assessment tools he has used. Surprisingly, it shows that most advisors have emotional intelligence scores toward the lower end of the range; in the vernacular, they are technicians, rather than people persons. Even so, company principals have tended to get much higher scores than the staff advisors. The entire office has to start upgrading client-facing skills – something that you simply won't see in most articles about transition planning.
There is no easy way to say this: The planning/advisory profession has gotten stuck in its transition planning efforts. Most of the advice you're getting is not likely to help; it is just like the kind of advice that is least likely to move clients ahead on their estate planning: valuations, tax issues, deal terms – numbers, numbers, and more numbers. Until the profession starts to grapple with some of the more difficult, complicated psychological dynamics of transition, a lot of advisors are going to die with their boots on and leave behind a business ecology that is incapable of helping their clients.
The Business & Wealth Management Forum session I mentioned at the beginning, with Grubman and Cheryl Holland will focus on how Holland, specifically, addressed these issues with Grubman's help – a real-world case study that the conference's target audience (the highest-end, most successful advisors) should be able to relate to. Her lesson, which many of you are realizing as you read this, is that the more successful you are, and the more confident you are in your skills, the more difficult this transition is going to be for you. The irony of succession planning for advisors is that, without help, the very best firms may be the least likely to survive their founders.
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. To invest in your practice and professional career, the annual cost is $299 a year with discount code 55DF: www.bobveres.com. To register for the Business & Wealth Management Forum, go to http://www.signupforconference.com.
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