Top 5 reasons advisors stay at BDs. Creating “Hooks” to improve retention
by Jonathan Henschen, CFS and featured in Broker Dealer Journal
Last year I wrote an article detailing the, “Top 5 Reasons Advisors Leave a Broker/Dealer.” The more I researched the topic, the clearer the differences between advisors who move on and those who stay became. For advisors to consider changing broker/dealers, the pain threshold must be sufficiently high to motivate them to make that drastic move. Nonetheless, though many advisors have mixed emotions about their broker/dealers, usually ranging from disappointment to apathy, most stay on. Why is that?
I look at the reasons reps stay with broker/dealers in fishing terms (can’t help myself; I live in Minnesota!). That is, I see these reasons as “hooks” holding advisors to their firms. The more hooks a firm has in its reps, the less likely they are to get away.
Hook number 1:
Advisor Reward Trips (That “Royal” Feeling) Not long ago, during a conversation I had with a big hitter from one of the industry’s high-end firms, I had an epiphany. He’d originally gone with the firm because they offered the advanced technology the advisor needed to handle his extensive assets.
As he recalled memories of his former firm, I could tell he missed being a part of it. The real clincher was when he recalled the top-producer trips. “Made me feel like Royalty!” he explained, wistfully. Though his current firm offered several levels of trips for various levels of production, apparently none gave him that same old feeling.
Bottom line: Broker/dealers need to ask themselves: “Do we make our better producers feel like ‘Royalty’? If not, why not?” That’s Hook number 1, and it’s a big one!
Another hook provided by reward trips is trophies and plaques. While some advisors are motivated and flattered by the trip alone, others crave the personal recognition of having something to put on their desks or hang on the wall. What’s more, receiving them in front of their peers makes these rewards all the more enticing.
Hook number 2:
Networking Environment A recent article in another industry publication discussed the exit of one of the Regional VP’s at Financial Network Investment Corp. (FNIC). The article touched on the fact that FNIC reps tend to make about 10% less payout than they would at other firms because of FNIC’s three-tier structure of regional VP, OSJ, and Advisors. Despite the lower payouts, however, FNIC advisors demonstrate above-average loyalty, which has resulted in historically low turnover.
In the late 90’s, I attended FNIC’s national conference and several of their Regional VP meetings. It was apparent that they were masters at creating an environment that melded reps together in enduring friendships through which they eagerly networked and learned from one another. Those meetings were educational and engaging; they also gave reps easy access to the regional VPs, as added resource advisors could freely be used for troubleshooting rather than turning to the home office.
In contrast to this healthy networking environment, one advisor came to us seeking to leave his current firm. He explained that he was an $180,000 producer and that during his firm’s annual conference, producers making $250,000 or more wore a distinctive white tag around their necks. Incredibly, the firm’s president instructed advisors who were less adorned to neither approach nor speak to advisors wearing white tags. So much for networking opportunities or learning from higher producing peers! Belittled by what he took to be a personal affront, the advisor was understandably furious (and for him, push had come to shove).
As for FNIC reps, what’s more enticing: higher payouts, or long-term friendships and engaging networking opportunities? The firm’s historically low turnover suggests the latter.
Hook number 3:
Having the Right Back Office People Jim Collins’ “Good to Great: Why Some Companies Make the Leap… and Others Don’t” (Random House Business, 2001) is an outstanding resource for independent broker/dealers. Jim examines eleven companies that have gone from being simply “good” to extraordinarily “great.” “Leaders of great companies are obsessed with finding the best people to work with,” he explains, adding, “The best people are self-motivated.” With the best people on board, management’s biggest concern becomes how to avoid de-motivating them by holding out false hopes that are ultimately swept away by events.
Great companies also encourage lively debate and dialogue, which is called “healthy conflict.” This unique process is akin to heated scientific debate, with people searching for the best answers to hard questions. Consequently, employee turnover at “great” companies is also unique: people either stay for the long haul or leave in a big hurry!
In addition, great companies don’t just churn employees, they churn them better! That is, great companies understand that the ultimate throttle on limitless growth is not markets, technology, competition, or products: it’s the ability to find, attract, and keep the right people.
As an interesting side note: The leaders of Collins’ great companies invariably display compelling modesty. They’re self-effacing and understated, in contrast to the leaders of lesser companies whose gargantuan egos inevitably contribute to their companies’ mediocrity or eventual demise. This is not to say that leaders of the great companies don’t have egos. The difference is that they channel their egos’ needs away from themselves and toward making their companies great!
I recently visited Tampa, FL broker/dealer GunnAllen Financial on a due-diligence matter. The firm had had some mixed press last year, but what I saw convinced me that they’re poised to make the jump from “good” to “great.” The reason is simple enough: they’ve focused intensely on bringing the best management people on board. Moreover, the firm’s Operations Department has implemented numerous staff quality-control measures, including not allowing staff members to say “no” to advisors. If they can’t say “yes,” the issue rolls up to their manager; if that manager can’t say “yes,” the matter rolls on to upper management.
In speaking with GunnAllen’s management, I learned that they have nothing but admiration and praise for their fellow managers, and that they’ve attracted some of the very best management in the industry. What’s more, the firm’s CEO fits the “great leader” profile spot on. Humble and understated, he’s fully confident in his people and the firm’s direction. An added bonus: He’s a former advisor, which adds genuine empathy and understanding when it comes to what advisors face day to day.
Bottom Line: Operating a quality back-office isn’t just about people: it’s about having the right people in the right places and not de-motivating them. When advisors are part of that kind of functional mix, it’s a “hook” that can be especially hard to break.
Hook number 4:
Practice Management / Business Development I’m using the term “practice management/business development” here in lieu of “technology” because when we speak withproducers at firms offering high-tech bells and whistles, we often discover that those advisors use little or none of them. Why, you ask? Because either no one ever showed them how to use them, or no one ever explained how all that technology could help them run their businesses, free up their time, and increase production by 20-40%.
The few firms offering full-blown “practice management and business development” realize that technology is worthless unless: A) It works properly (we hear story after story of technology that doesn’t), and B) Advisors know how to use it where it counts (i.e. to help them spend more time in front of prospects and clients). Technology is becoming increasingly commoditized, and most firms now have technology platforms like Consolidated Client Statements, LaserApp, LaserFiche, and WebOps. So for firms to tout technology as a reason for reps to join them is quickly becoming about as valid as boasting an “extensive selection of mutual funds.” Granted, there will always be firms that are leaders in the latest technology, but, going forward, what will set firms apart will be how well they help advisors understand and apply technology in their daily business activities.
Bottom Line: Effective “practice management and business development” is the unquestionable realization that technology needs to be applied in an advisor’s day-to-day activities. When correctly used, technology can help average producers become high-end producers, and high-end producers reach even greater heights. Not to put too fine a point on it, but when advisors understand and can apply your firms’ technology, you have yet another “hook” that will hold them close.
Hook number 5:
Marketing Support Helping advisors market themselves to specific niches is a growing trend among broker/dealers. This varies from simply helping advisors network with CPAs and attorneys, to exclusive arrangements that bring advisors leads of medical professionals, and then provide experts for onsite presentations to these qualified leads. Houston’s Next Financial Group has made a financial commitment to offering no-interest loans up to $10,000 for reps to use in their marketing efforts. The firm’s goal is for their advisors to triple production in three years. In addition, larger firms are giving recruiting and financial support to producer groups that excel in marketing and networking. Many of these groups have turnkey marketing programs that can take $150,000-level producers to the $300,000 to $500,000 range or beyond within two to three years. A few of these producer groups have exclusive niche marketing arrangements, giving advisors opportunities to pick up clients with telecommunication company employees, athletic directors and coaches, and corporate employees. What better way of expanding advisors’ books? In effect, these exclusive marketing initiatives are Golden Handcuffs –powerful “hooks” that are extremely difficult to break.
In an Ideal World
These five “hooks” are obviously not the only options you have for improving retention, but we’ve found them to be among the most effective. We’ve seen broker/dealers who have mastered just one or two of these hooks experience remarkably low turnover very quickly. What’s more, when firms succeed at keeping their best producers, retention eventually becomes a matter of watching those successful reps head off to enjoy well-earned retirements, knowing that a pool of qualified advisors are eager to buy their book of business.