In my last two columns, I wrote about how bear stock markets ironically provide the highest growth rates for many advisory practices, and I suggested ways you can position your firm and your staff to capture your share of this windfall including: focus on your target clients, systematize operations, don't micro manage, anticipate problems, and communicate with your staff about what to expect and how you'll deal with this new environment.
Yet, the more successful advisory firms are already positioned for growth. They face a set of challenges that largely revolve around recruiting professional talent in a down market. In times like these, most advisory practices tend to put their recruiting plans on hold, waiting to see what the impact will be on firm revenues and client growth. On the other hand, the more successful firms are structured around growth, so they are always recruiting. In tough times, they anticipate an influx of new clients, so if anything, they look to add even more people. And while recruiting during down markets can present a whole new set of rules–if they're not careful, even the best firms can run into problems–firms that get it right have an opportunity they may never get again: a chance to attract experienced young advisors.
The first pitfall comes when advisors accelerate their recruiting efforts to meet the flood of new clients. When you feel pressured to add bodies, it's easy to cut corners and take short cuts in the recruiting process; easing up on background and reference checks, cutting back on the screening and number of interviews, focusing more on "selling" recruits on the job, and even simply lowering one's job requirements. However understandable these half-measures are, this is also, of course, a recipe for future problems.
The successful growth of any advisory practice largely depends on hiring the right people for the right jobs. During periods when a firm is under stress–such as during extraordinary client growth–the need for the right people becomes more acute, not less. And shortcuts in the recruiting process often create even more management problems for firm owners and senior advisors, at a time when their time is already stretched dangerously thin. Sorting out problem employees in the wrong jobs is a challenge for most advisors during the best of times: at critical times such as these, it can push a practice into stagnation, and often into decline.
The next problem comes when firms do stick to their standard recruiting process, but find it difficult to attract the "right" young professional, or sometimes, anyone at all. With many advisors putting their recruiting temporarily on hold, the available supply of high-quality young folks coming out of financial planning programs should be increasing from its low levels of last year. But with that said, good young planners are always in demand, and finding the "right" fit for your firm almost always takes way longer than people expect.
Consequently, advisors with rapidly growing firms have a tendency to get frustrated with their lack of immediate recruiting success, and attempt to solve their work overload problem by over-hiring administrative help. [Because there's a lack of consistency with the terms used to describe various functions in advisory firms, let me at least tell you what I mean: a professional is someone with an education and/or credentials that puts them on a career track to directly advise clients. Administrative people are everyone else at the firm, from the receptionist, to the back-office staff, to paraplanners. From a financial viewpoint, professional compensation is subtracted from gross revenues as a direct expense on your P&L, while admin comp is classified as overhead.]
