I’ve long admired the business and advisory skills of Fausto Pastro.
I’m grateful that I met him in 1995, relatively early in my consulting career as he epitomised the foundational principles needed to build great advisory firms.
I was quoting him again recently during one of my weekly roundtable sessions when discussions turned to “when is the right time to hire your next adviser?”.
Fausto’s principle on this was:
“No-one is ever ready for the growth that success forces on their firm. All the planning and preparation doesn’t make you ready, just committed, which is more important than being ready.”
So when is the right time to hire your next adviser?
The first step is appreciating that being an employer is different to being a team developer.
Achieving the returns of hiring for the new adviser, the firm and clients, it is best to assume that new advisers are seeking careers, not jobs. It is also wise to assume that new advisers will not follow the career path of the founding adviser.
The best days of team developers are those when they enabled their team to progress. Whereas the best days of most founders are those when they enabled their clients to progress.
Hiring while lacking the needed team development skills is like advising without empathy. Technically good, but floundering professionally.
So the first requirement for hiring the next adviser is having access to career-development skills from someone already on the team (regardless of full-time or part-time) or if no current skills are available, it will need to be outsourced.
The second step is about career paths.
Not just for the new applicant, but for everyone in the firm.
Hiring is less about addressing the increasing demands of activity and more about increasing the productivity of teams.
I recently chaired a strategic planning discussion of a $4m firm whose frustrated directors believed they enjoyed better returns when they were a $2m firm. More team members, activity and growth does not mean more returns. Increasing returns is all about increasing productivity.
My blunt and preferred measure of productivity is revenue per full-time-equivalent (FTE) person employed.
That is, total annual revenue divided by total FTE team members employed (or long-term contractors) over a year.
My benchmark for advisory firms is $250,000.
Meaning the productivity benchmark for an FTE one-person advisory business is an annual revenue of $250,000. A two-person firm is $500,00 and so on. (There are variations of course, particularly for firms employing full-time and part-time off-shore based team members).
Hiring before $250,000 is logical, but usually means founders are not being properly rewarded for effort, risk and return on investment. This is one of the ‘rewards’ of working for yourself.
While underpaying founders is a situation normal for start-ups, long term this situation withers the much needed confidence for start-ups to thrive and earn deserved long-term returns. The old dealer group structures supported many advisers below $250,000, but those days are gone due to margin-pressure, compliance and the inability of institutions to balance product and advice distribution.
Despite popular opinion, I reckon the smartest hire around the $250,000 mark is not a cheap full-time administration resource.
Cheaper resources will need management and someone with team development skills to nurture them and their roles. Skills that many founders lack. A smarter first hire is possibly a part-time and experienced team member with management experience who will be more expensive, but more valuable provided they can ‘manage’ as well as fulfil administrative responsibilities. The growth plans supporting these roles are not just for the new hire, but also highlight the role changes needed for the existing team to improve the business’ productivity as well as addressing the activity demands.
If the part-time, experienced team member also has the ambition to become an adviser, even better. Though steeper, it’s a better path provided everyone, especially founders, stays on the path and plan.
At a $500,000 turnover, most advisory firms have between 80-120 active clients. For these firms whose growth plans include the hiring of more advisers, a full-time or part-time adviser team member is going to be needed soon, if not already on board in some capacity.
Being prepared for this hiring requires not only the skills of career building, but also a plan to show how revenues will reach approximately $750,000 in the coming three years (15% topline growth) while also increasing real productivity by controlling working hours, minimum fees per client and maintaining healthy and different post-Covid team cultures.
At the $750,000 turnover, firms have proven systems and procedures, loyal clients, pipe-line of prospects and are ‘established’.
However, the propositions, systems and procedures and strategies that grow firms to $750,000 need renovation if firms are to grow to $1,500,000 and beyond. Hiring advisers at this stage is a productivity strategy. Therefore it is less about getting new advisers to ‘take over the old clients of the founders’ and more about ‘taking on the clients that represent the firm’s future WITH the founders’.
In the $1,500,000 to $3,500,000 space I am amazed at the number of firms believing that their next growth of advisers is via a strategy similar to the failed Stockfords growth strategy. The underestimation of effort, leadership and systems integration required to patch-in different advisory groups will, I believe, place many promising integration projects on an increasingly complex roundabout that will create more friction than returns for stakeholders, especially clients.
Hiring your first adviser at $250,000 or $2,000,000 turnover requires different plans but a similar commitment on behalf of founders and existing team members.
Fausto’s principle was about commitment to productivity, not just addressing activity demands.
This requires a change in all team members, not just the new team members. Obviously, the larger a firm becomes, the less the impact of new hires regardless of the type of role being hired. However, as advisory firms get larger the commitment to productivity becomes harder and more essential.
This is measured not by revenue benchmarks but cultural benchmarks of which the best is a team’s culture and commitment to their OWN collective plan over and above their commitment to the plans of their clients or any third-party.
If the plans and priorities of others continually dictate the priorities and culture of the firm and team members, the firm’s plan will fail, the returns will plateau and regardless of size, the firm’s destiny is less under the control of the founders and more under the control of the uncontrollables – the clients, the marketplace, the competitors, the regulators, and the trends.
Fausto’s other principle is that growth is tough, but the returns are worth it.
What do you reckon?
Photo credit: shutterstock_1920414800
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His firm, Certainty Advice Group coaches, trains and is building a growing group of advisory firms delivering comprehensive, unconflicted advice, priced purely on value. The community of advisory firms aligns with Australia’s highest and only ACCC/IP Australia Certification Mark standard of comprehensive, unconflicted advice – Certainty Advice. He has authored four books regarding financial advice with his latest – What Price Value – available now in pre-release for launch on 16 March 2022.