Staffing a wealth management practice

Accounting

The wealth management business as we currently know it is far less mature than the CPA or legal professions. After all, the Certified Financial Planner certification was only born in 1972 and the Certified Financial Planner Board of Standards was founded in 1985. With far less history than the CPA profession, the financial planning or wealth management business is still evolving into a profession that can be broadly respected and somewhat consistent from practice to practice. As of this writing, it’s my opinion that the wealth management business at large still has a long way to go.

How that relates to the wealth management business inside a CPA firm is an interesting paradox. It seems as if many CPA firms still take their lead and direction on how to staff and compensate their teams from the wealth management business, when the reality is that most advanced and progressive wealth management firms now agree that their staff and compensation models are derivatives of what they see in the accounting and legal professions. This issue goes deeper than the affiliation models for CPA firms and whether you are affiliated with a broker-dealer or not. The issue goes to practice management and the business plan for your firm.

If your firm is looking for extra cash flow by grabbing any low-hanging fruit that originates from the CPA firm, then a loose staffing and compensation model is likely the lowest-cost way of running the business. Note I didn’t say the best way, simply the cheapest way. This is typically done as joint work where staff simply gets a “piece of the action.” This means that staff is paid a percentage of the business revenues derived from wealth management activities for the clients that they serve. This is similar to the Wall Street wirehouse or insurance agency models where the firm sets up split revenue codes to compensate an advisor according to a pre-arranged revenue split. I believe this method is old, outdated and ineffective for firms that are serious about having a significant wealth management division.

Rather than taking guidance from the insurance or securities industry, I prefer the staff and compensation model that has emerged from the larger investment advisory firms. These firms typically are registered investment advisors only, with no broker-dealer affiliation. When you go deep and learn about their business model, it is very similar to the CPA firm method of building teams and compensation with a little modernization.

One plan, then another

Before a firm can be serious about staff and compensation, it needs a business plan. One of the first issues when taking staffing seriously is this chicken-and-egg question: Do you build your staff first or do you generate income and cash flow first? My choice would be to build your staff to the business plan and then let your marketing drive the revenue and cash flow. It isn’t hard to market wealth management within the walls of a CPA firm.

The trend amongst the highest performing advisors is to build client service teams. These teams resemble the CPA firm hierarchy: partner, manager, staff, augmented with subject matter specialists as needed. The firm needs a leader to start ­— someone who is responsible for everything from marketing to delivering the experience promised to clients. Most firms choose an accounting partner to do this, with mixed results.

The leader shouldn’t be a CPA partner who is running the wealth management division on a part-time basis. The leader needs to be full-time and completely dedicated to the wealth management business. If this leader has a good wealth management technical background, then your next hire would be a good administrative assistant/paraprofessional — someone who can help with the minutiae of gathering documents, data input and setting meetings to discuss the plan.

The leader’s compensation should look like a traditional CPA partner comp plan. It will be low to start, with an aggressive bonus program. Eventually, this leader will rise to the compensation level of a managing director or partner as this unit grows and flourishes.

Building out the rest of the team will be similar to your CPA staffing. Each client should be serviced by a team. This team should have a lead advisor and a lower-level advisor. All meetings with clients about planning matters should include both team members. This is the best way to lead and train your junior staff, and it allows the lead planner to be 100 percent focused on the client, the conversation and the agenda.

I believe it is best that these team members become W2 employees of the planning entity. In most firms, the planning entity is a separate entity — as it should be. The benchmarks for these W2 employees should be based on the market in which you are located. Some of the organizations that many advisors deal with publish detailed staffing and compensation surveys and studies. Some of the more popular ones that I’ve seen come from Charles Schwab, Dimensional Funds and the CFP Board of Standards. Become familiar with these in order to structure your plan or to revise the plan that you currently use.

On the client side

Just how many clients one team can properly serve depends on the scope of work, complexity and size of each case. As far as scope of work goes, my advice is not to compromise your firm’s business plan for deliverables and the client experience. The best model for the most successful firms is a heavy wealth management service model compared to the “asset-grabbing, lip-service planners” of yesteryear. Those without robust service models will suffer if they are narrowly focused on any one service — particularly if that service is investment advice and retirement forecasts. Clients do not need you for that commoditized part of the relationship.

The robust wealth management offering leaves no gaps in your advice. You will give advice on all of the major areas of the CFP playbook, and take accountability for the implementation with the other professionals needed.

But the robust service model also includes many family office-like services, such as family governance, domestic employee guidance and HR, and helping your clients’ children find purpose and meaningful careers.

Next you build on your subject matter expertise. In the early days, it is OK to obtain these on an as-needed basis. But the growing firm is going to build these specialties in house. These may include specialties like Social Security and Medicare, investing in alternatives such as real estate and private companies, investment analysts, insurance analysis (not insurance sales), international expertise, estate planning expertise, etc.

As you would in your CPA firm, have a solid career track for wealth management professionals. Hold reviews at least annually, and more frequently for those who are at the entry level through manager level. I also like the idea of tying compensation and bonuses to more than just new revenues in the door. For staff on a career track, these incentives may include passing the CFP exam, being able to lead client meetings, training other staff or attending offsite educational meetings. Be creative, and tie your bonuses to the tactics that you believe will advance the firm’s client relationships and are in the best interests of your clients, the employee, and the firm’s business plan.

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