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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
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Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights, and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics, and mindset shifts that set the top 1 % apart from the rest. I'm Ray Sclafani, and I'll be your host. If your game plan includes retaining
top tier advisors in your firm, then career pathing and compensation are key. As I've noted in the past, a rapid aging advisor population means that competition for top tier advisor talent is only gonna continue and intensify. As a result, we expect that the poaching of high performers in the advisor ranks may soon become one of the biggest existential threats
to the continued success and sustainability of your business. In response, you're gonna need to significantly strengthen your defenses by exploring new and creative ways to retain the future leaders of your firm. Talent is walking out the door faster than firms can bring it in. According to a recent McKinsey study, 39 % of employees leave mainly due to insufficient career development.
and 70 % of advisors who choose to leave a firm do so because they feel underutilized and undervalued. Other studies indicate that the cost of replacing an employee, such as recruitment, training, and lost productivity, can range from 50 to an astonishing 200 % of their annual salary. Now that should get your attention. For advisory firms, these costs can escalate even higher
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given the critical nature of client relationships and the expertise required to perform the work you do. So what key areas should you focus on to enhance the retention and empowerment of future leaders in your firm, individuals who can drive the firm's ongoing success and continuous innovation into the future? It boils down to a few key things. Career pathing and professional growth are at the top of the list. Career development is not just a perk,
It's a necessity. McKinsey research indicates that companies with structured career pathing programs enjoy 34 % higher retention rates and experience significantly greater employee engagement. But here's the catch. Many firms don't provide a career path forward or they assume advisors will figure it out on their own. And the result, elite performers leave for firms that offer a clearer roadmap towards the future.
they want to achieve. Jeff Brown, who's the president of Stratos Private Wealth says, before they even start with his firm, advisors understand precisely what will be expected of them at each level, how long it will typically take them to progress to the next level, and precisely what their compensation will be at each level. For younger professionals especially, a clearly defined career path is a powerful retention tool
that allows each advisor to continually evaluate his or her progress and understand exactly what they need to achieve to reach the next level. However, it's essential to remember that not every strong advisor will aspire to ownership or even partnership. By creating multiple career paths, you can help prevent losing these uniquely valuable performers. Let's examine what a compelling career path looks like.
and how your firm can help advisors envision a long-term future within your firm. So there are three things I'd encourage you to think about. The first is understand individual long-term career goals. Number two, invest in developing your future leaders. And number three, provide a clear pathway to partnership for those that want an equity stake or an income stake in the firm. So let's explore each of these just a little bit deeper here. First,
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Individual long-term career goals. You want to ensure that each advisor in your firm has a written career plan and understands exactly what the path to achieving their goals entails, just like Jeff Brown described. Too often promises regarding the time, the skills or credentials required for advancement, well, they remain vague and implicit. The more explicit you can be, the better off you're going to be at retaining top talent.
Top performers are seeking this level of explicit specific commitments. Just make sure that you honor those commitments or you'll quickly see the top talent walk out the door. The worst thing you could do is explicitly state it, document it, communicate it, and then not live up to your commitment. May sound really obvious, but it's remarkable how many leaders do so. Keep in mind that not everyone's going to desire an advancement in their career.
Some may genuinely enjoy their current role and want to focus on just improving what they love doing. That's okay. Take care to understand every individual in your organization's long-term career aspirations. The second, you want to invest in developing your future leaders. I often hear founders and controlling owners lament that they didn't get into the business to manage a bunch of people. However, there's a famous Jack Welch quote that's
really important to be reminded of. Before you're a leader, he says, success. I often hear founders and controlling owners lament that they didn't get into the business to manage people. However, I often will remind them of the famous Jack Welch quote, before you're a leader, success is all about growing yourself. Once you become a leader, success is all about growing others. And so having professional development plans and empowering future leaders to grow.
through continuous education and mentorship, it's totally essential. Third thing, this clear pathway to partnership. The next generation of leaders often seeks more than just a J-O-B. They want a stake in the business, especially your high performers. Offering pathways to partnership, either income partnership or equity partnership, can be a powerful motivator. Be sure, however, you pull every lever in the toolbox long before you get to income or equity ownership.
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consider implementing a tiered partnership program similar to those found in law firms or large accountancies. And this should feature this income and equity partner pathway. This creates that clear path for progression and rewards commitment, performance, and loyalty. The financial advisory industry is shifting from traditional compensation models toward a more dynamic mix of salary, performance-based incentives,
equity opportunities, long-term wealth creation, yet compensation alone doesn't create that loyalty. The real game changer is a partnership opportunity. Firms that fail to adapt are going to struggle to retain top talent. In today's market, the best advisors are no longer looking solely at salary. Your high performers want to understand what's the pathway to ownership. Long-term wealth building opportunities and a clear pathway toward
partnership is what the best in the business really seek. And McKinsey's research only amplifies this. They show that firms with transparent equity structures and a clear promotion pathway see 20 % higher advisor engagement and lower attrition rates. Yet many firms still operate using a black box model where advisors, well, they don't know how or when they're eligible to become partners, what they should expect in terms of increase in compensation. So
This raises a few critical questions. When's the right time to sell equity? How do you determine when a next gen advisor will truly be ready to lead? What is the best way to align compensation with firm growth? What occurs if incentives do not align with growth and succession goals? Well, the road to partnership can take many forms. What matters most, however, is that there is a formal partnership agreement outlining the criteria for partnership.
including these performance benchmarks and time expectations and buy-in requirements, communicating the firm's equity ownership process early and often so advisors understand what they're working toward. Additionally, consider offering partial ownership or phantom equity as an incentive to align the interests of future partners with the firm's long-term success. I often find that advisory leaders don't engage in this type of thinking
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because A, they don't understand how to structure a program or B, they're not really clear of their own goals, what they want out of the business. A clear pathway to equity ownership will motivate high performing professionals to stay with your firm and work toward becoming partners, which will help reduce turnover and improve your succession planning options. Remember that the costs associated with higher advisor turnover are not solely financial.
They also involve the risk of losing valuable client relationships when clients choose to follow a departing advisor. So to mitigate this risk, it's crucial to ensure that multiple team members build strong personal connections with each and every client. Additionally, consider consulting legal counsel, such as Brian Hamburger at Market Counsel or John Watkins at Reitler Law. We'll put links to each of those professionals in the show notes.
There are strategies they can help you to incorporate specific payment provisions in employee agreements, such as requiring a multiple of trailing 12 revenue for clients who follow a departing advisor. All of that will help protect your business. With each episode, we provide a series of coaching questions so that you and your leadership team can reflect upon the episode and maybe think about some strategies that will help your firm move forward. Today, there are four coaching questions. One.
What do you want your firm's leadership team to look like five years from now? And what are you doing today to prepare your next generation advisors to step into those roles? Number two, what would you change or do differently if you were designing your compensation and career pathing model from scratch to retain top talent at the highest level? Number three, how might your firm proactively align equity opportunities with advisor performance?
and long-term commitment to create a more compelling future for the individual and the business? And fourth, what strategies have you implemented or observed being implemented that truly work for retaining top talent beyond just cash comp? Well, thanks for tuning in and that's a wrap. Until next time, this is Ray Sclafani. Keep building, growing and striving for greatness. Together, we'll redefine what's possible in the world of wealth management.
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be sure to check back for our latest episode and article.