AABP EP Awards 728x90

Caught between a rock and profitable place

/wp-content/uploads/2022/11/BR_web_311x311.jpeg

.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} A host of uncertainties surround the financial markets, the political arena and the global economy. In short, it’s a great time to be a financial adviser.

As financial advisory firms continue to grow at double-digit rates, advisers’ compensation has increased at an even faster pace as firms compete for talent. It’s a double-edged sword for advisory firms.

“In our industry, it’s getting harder to find people,” said Mark Stadtlander, president and chief operating officer of Foster Group in West Des Moines. “And compensation and ownership are two of the biggest issues.”

This year, the typical independent advisory firm expected to increase its assets by nearly 17 percent, compared with an average growth rate of 25.7 percent in 2006, according to an annual industry survey by Moss Adams LLP, an accounting and consulting firm based in Washington state. The average revenue per advisory firm nearly tripled from 2000 to 2006, increasing from $632,000 to more than $1.6 million, the study found. With that growth, the 728 firms that responded to the survey employed, on average, twice as many as participating firms six years ago.

“We see rising revenues on the one hand, and a corresponding rise in compensation levels on the other,” said Philip Palaveev, a Moss Adams principal. To keep pace with the rising demand for professional advisory services, 37 percent of firms indicated they expected to add at least one professional this year.

Demand has also pushed up compensation levels for advisers considerably. Over the past two years, firms surveyed by Moss Adams reported a 41 percent increase in the median compensation for their lead advisers, to $150,000 per year. The average total compensation per firm was also up sharply. Between 2004 and 2006, total compensation averaged $840,000, a 44 percent increase from 2004.

Some advisory firms in Greater Des Moines say their growth is keeping pace with national trends, and they expect to continue hiring in 2008.

“We are very strategic in the way that we hire people and how we place them,” said Stadtlander, whose firm has a staff of 24 and just under $1 billion in assets under management. “Part of our plan is to find people to fill specific niches within the company and to give them the authority to manage that part of the company. There is very little micromanagement.”

During the past five years, Foster Group has added several more partners of varying ages to ensure continuity, and all seven partners have ownership stakes in the firm, he said.

“Even without a formal (ownership) agreement, I would say that most people here would say they have ownership in their respective positions,” Stadtlander said. “That ownership in the company has created enormous value for us, and we have very little turnover.”

Several factors are working against firms seeking to grow, said Tim Woods, branch manager of the West Des Moines office of UBS Financial Services Inc. The office currently employs 23 advisers and 12 operations and support staff at its West Glen location.

“We’re always looking for quality people, but the one thing I’ve noticed, it’s harder to get into the business and stay in the business,” he said. “I think the attrition rate is extremely high, and the industry is working on trying to reverse that.”

Pursuing sales leads by telephone, for instance, has become much more difficult over the past several years due to the creation of the National Do Not Call Registry and increased use of Caller ID, he said. “Now it’s easier to just let the phone go to an answering machine, or if you purchase leads from someplace, and they happen to be on the Do Not Call Registry, you can’t use them.”

UBS allows its financial advisers to determine whether they will operate on a fee or commission basis with their clients. Fee-based services are becoming much more common than they were five or 10 years ago, Woods said. “Some people are comfortable with fees, others aren’t,” he said. “That’s why it’s a decision the financial adviser and the client make.”

Advisers are also being asked to take a more comprehensive approach to reviewing clients’ needs, Woods said. “There’s just a lot more planning involved, rather than calling someone with a (certificate of deposit) idea.” In addition to seeking additional qualified advisers, “now we’re looking for support staff that also have their Series 7 (NASD general securities representative) license,” he said.

UBS has adopted a number of coaching and mentoring programs to support younger advisers and help them become successful, Woods said. As part of its benefits program, UBS provides an employee stock purchase and deferred compensation stock program. “We make sure to retain the advisers we have by recognizing their accomplishments,” he said.

Nationally, firms in the Moss Adams survey indicated they expected to increase total staff 14 percent this year to handle increased demand. Stadtlander said his firm has been hiring three to four additional people each year, and he doesn’t see the pace slowing down.

“We’ve had 20-plus percent growth for actually the past seven years,” he said. “I see similar firms to us and those in our consortium experiencing similar kinds of growth. I just don’t see anything to cause that to change. For us, nine out of 10 (new clients) come to us from referrals, so that’s where our existing clients are creating those opportunities for us.”

Similarly, “100 percent of the people I’ve hired in the past three years have been by word-of-mouth,” he said.

Over the past 10 years it has become more difficult to bring people up through the ranks and it has become more common to hire experienced professionals as well, Stadtlander said.

Ross Polking, one of Foster Group’s newer advisers, had worked for six years as an underwriting manager for Principal Financial Group Inc. before joining the firm in February 2006.

“I think two things really drew me in,” said Polking, who holds a master of business administration degree from Drake University and is working toward his Certified Financial Planner designation. “Foster Group is a fee-only firm; we’re not out there trying to sell a story to someone whether we believe it or not. And our firm is one that doesn’t try to choose individual securities; we just really try to capture the market. … it’s truly working in partnership with the client, which made it an easy decision when the opportunity came up.”

Bart Banwart started out with a certified public accounting firm and then worked at Principal before joining Foster Group last year. He’s also working toward his CFP designation.

Banwart said the firm has a “great corporate climate.”

“We really look out for each other,” he said. “If a client calls in and their normal contact isn’t here, there is someone who can help them. We really focus on a team effort, and it’s an exciting place to be.”