Kitces and Carl: Managing Advisor Turnover And The Transferability Of Trust
In July 2021, Schwab released its latest RIA benchmark study, which, among a plethora of other things, asked advisory firms what their top strategic initiatives were. Unsurprisingly, the top result was to “acquire new clients through client referrals”, but coming in at second (and moving up from the fifth spot the previous year) was to “recruit staff”. Given the steady growth in the number of clients that advisory firms serve (regardless of firm size) over the past several years, it’s also not surprising that firms are focused on hiring additional staff to absorb the growth. But in an industry that, for much of its history, has seen a tremendous amount of turnover, many financial advisors are concerned that the advisors they hire may not stick around nearly as long as their clients, the vast majority of which stay with the firm they hire for life. Which raises the question: How can financial advisory firms structure their hiring practices to manage the risk of advisor turnover?
In our 68th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss two reasons why advisory firms may be wary of hiring additional advisors, how advisory firms can transfer the trust that’s been built over time with their clients to other advisors, and the key mindset shift that advisors should make when thinking about hiring advisors into their firm.
As a starting point, it’s important to recognize that advisors often tend to overemphasize the need to ensure that clients have a continuous relationship with just one advisor. The reality is that clients, more often than not, care more about whether they are getting the best advice and service they can get rather than who is giving it to them. Which is good news for advisory firms and is the reason that they can not only scale and grow, but can also get lofty valuation multiples. Because if the “who” part of the equation isn’t as important as most advisors make it out to be, then it means that the trust between advisors and their clients is transferable. The key, however, is communicating that transfer the right way. Advisors who cling to client relationships by saying that they’ll “be there for anything serious that comes up” end up undermining the new advisor. On the other hand, by building up the newly hired advisor and framing the move as increasing the level of service that the client will receive, the hiring advisor takes the trust they’ve built with the client and hands it to the new advisor.
With that knowledge, advisors can then address the underlying reasons why they may be reluctant to hire additional advisors. The first is the fear that, after transferring trust to a new advisor, that advisor still decides to move on. The good news, however, is that the trust that was transferred can be transferred again, which in turn speaks to the fact that clients are clients of the firm, and not any one particular advisor… just as long as the firm is ensuring that their clients are being served well.
The other fear that hiring advisors often have is that their new hires will do so well that they decide to leave… and take clients with them. While that’s always a possibility, advisory firms can mitigate that risk by using a team structure at their practice and ensuring that clients interact with other advisors and employees at the firm, because the more touchpoints a client has, the more likely they’ll stay with the firm even if one member of the team happens to leave.
Ultimately, the key point is that financial advisors who are considering hiring additional advisors to help scale their firm (but may be uncomfortable with the notion that the advisors they hire may not be employees for life) can shift their mindset to viewing clients not as clients of the advisor who services them, but rather as clients of the firm itself. And it’s the transferability of the trust that’s been built with clients over time that makes it possible for firms to grow, for employees to turn over, and for clients to stay with an advisory firm for life.
MICHAEL KITCES BIO
Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.
In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.
CARL RICHARDS BIO
Carl Richards is a Certified Financial Planner™ and creator of the Sketch Guy column, appearing weekly in the New York Times since 2010.
Carl has also been featured on Marketplace Money, Oprah.com, and Forbes.com. In addition, Carl has become a frequent keynote speaker at financial planning conferences and visual learning events around the world.
Through his simple sketches, Carl makes complex financial concepts easy to understand. His sketches also serve as the foundation for his two books, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money and The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money (Portfolio/Penguin).
This podcast first appeared on the Nerd’s Eye View at Kitces.com at https://www.kitces.com/blog/advisor-hiring-turnover-trust-transfer-team-retention/ and has been reprinted here with permission.