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Training and compensating junior advisors

Liz DeCarlo

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Training and compensating junior advisors


Section 1: Hiring and retaining talent

Section 2: Employee compensation and motivation

Section 3: Employee processes/managing employees

Training and compensating junior advisors

By Liz DeCarlo

You need additional staff and think it’s time to bring a junior advisor into your practice. But you’re not sure what responsibilities they should have, what type of training works best and how to structure their compensation. Two longtime consultants to the financial services profession share their expertise on the process.

Should you hire?
“What I’ve found is that when people say they want to grow, what they’re really saying is, ‘I have the opportunity to serve more clients,’” said Angie Herbers, a 17-year consultant to financial services professionals. “But hiring someone should be the last solution.”

Herbers recommends considering alternatives first. “Get more efficient. Scale the practice. Make your client base smaller.” You should also take into consideration that training a junior advisor can take anywhere from 18 months to three years before you see a return on your investment.

Take time to assess exactly what you want that junior advisor to do. Are they supporting senior advisors? Are they bringing in clients or meeting with new clients? Will they be participating in operations? “This is the step most people skip,” Herbers said. “Most advisory firms hire without really knowing what the junior advisor will do.”

Getting the junior advisor to a more senior level as fast as possible is critical, so you’re not facing a revenue loss, Herbers said. “You want them working with clients, or on their own with clients, as quickly as you can. Otherwise, you may as well bring in an administrative person who doesn’t give advice.”

Once you hire
When a new advisor begins work, Jason L. Smith, a 12-year MDRT member from Westlake Ohio, looks at his existing team members to see who could use extra support. He has junior advisors start in back office or administrative roles so he can justify giving them a salary, and focuses the rest of their time on learning how to sell and succeed in the business.

Starting junior advisors in the back office helps them learn the language, and how a lot of the products and portfolios work so they know more when talking to clients, Smith said.

He has his clients categorized into A, B and C segments. Because he prefers to work primarily with A-level clients, Smith will often assign junior advisors to the C-list clients. Initially, a senior advisor will lead the client meeting while the junior advisor listens and learns. The goal is to have the junior advisor take over the C-list clients on their own.

For the junior advisor to be successful, you need to have a very process-driven organization, Smith said. “Have the processes in place so there are efficiencies in your training, to where they don’t stray and start doing it their own way.”

You also need to have administrative and marketing staff in place to support the junior advisor. “At the end of the day, that advisor is going to look for ways that you’re getting them in front of people,” Smith said. “A marketing system that creates activity for them on a consistent basis is like the golden handcuffs, because you’re giving them the marketing support they can’t get elsewhere.”

Herbers has found that a team approach often works best when training new advisors. While there are many different ways to structure teams, she has had the most success with a team of four people: one senior advisor, two mid-level advisors and one junior advisor.

“The traditional structure was one advisor and two or three junior advisors, but the problem is there’s not enough time for that one advisor to spread his knowledge,” Herbers said. “So when we pulled in mid-level advisors and one junior, then that knowledge was spreading fast. With this approach, we had four heads working together as opposed to one.”

Compensation structures
Both Smith and Herbers agree there are many different ways to structure compensation for junior advisors. They also agree that initially, adding a junior advisor means your company will lose money, rather than make it, as the advisor is in training and not bringing in revenue.

Smith pays them a salary while they do other functions within the business. “I try not to make them a loss leader. If you put them on salary and tell them to sell, there’s not much incentive,” he said. “If you pay them a very nominal salary, you can incentivize them to make sales to get above and beyond this salary.”

Herbers has also seen success in starting junior advisors with a nominal salary and a certain percentage of the revenue they produce. She adds one caveat: The compensation structure for junior advisors should be the same as senior advisors.

“If the senior advisor is taking 100 percent or 80 percent of their production, the junior needs to be able to do this. If they get salary and a revenue bonus, they both should get it,” Herbers said. “It doesn’t have to match in the numbers; it has to match in the structure itself.”

Smith recommends against allowing advisors to draw against their future salary. “This can quickly put them in debt to you, and ultimately the only solution they come up with is to leave because they’re so beat up by going so far into the draw,” he said. “In reality, are you really going to hire a collection agency to get that debt? There’s just no positive in putting them into debt with you.”

Smith and Herbers also discourage profit sharing with junior advisors. “I’m against it because those junior advisors have no control over the expenses of the firm and don’t make decisions on it,” Herbers said. “Profit sharing seems like a good idea, but it’s way too risky to run compensation structure on profit margins.”

Smith uses profit sharing only with the top leaders in his organization. “Profit sharing is the first way you give them that ownership mentality, and if they continue to stick around, then you work out a way that they can buy in,” he said. “But there’s no way you should do that with junior advisors.”

Don’t make these three mistakes
When it comes to compensation for junior advisors, Smith, CEO and founder of Clarity 2 Prosperity, a financial services training and coaching company, has seen companies make the following mistakes.

  1. Giving them too much of the revenue off the sale they make. For example, some businesses pay 80 percent, leaving only 20 percent to pay expenses for the firm and turn a profit. That’s not realistic, he said.
  2. Allowing residual income revenue to go directly to the junior advisor from the insurance company or financial institution. “That money should be payable to you or your firm. You should do the accounting and then you pay the advisor. Otherwise, it’s too easy for them to leave because the revenue is going directly to them.”
  3. Paying them too little. If you pay 50 percent or less of their sales revenue, they may decide they can make more on their own. Smith recommends splitting revenue between “the find, the mind and the grind.” Using this compensation structure, 40 percent goes back to the house, 20 percent to the person who found the client (the find), 20 percent to the person who formulates the plan and closes the sale (the mind), and 20 percent to the person who services the client (the grind).

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