Instinct or Intention?
Teams that are highly invested in a business are not bought, they are bred.
Given the competitive challenges that advisory firms face today, understanding how successful firms hire is an important step to creating a top-notch team. Quantuvis Consulting recently took an in-depth look at hiring as part of its Best Practices Study Series on Human Capital. The chart "Getting Formal," shows that a healthy number of firms have instituted hiring processes, although the degree to which the process is formalized varies significantly.
The most common approach is for a firm to have a hiring process that is informal, although similar, each time. Quantuvis' research compares the performance of the top 25% of financial advisors based on total owner income, as measured by all owner job compensation plus all ownership returns, with the remaining 75% of advisors. In this case, the data shows that a higher percentage of top-quartile firms have developed a formalized process than their lower-ranking peers.
The lack of a formalized hiring process is not surprising, given that a vast majority of firms review their process only when actually hiring or promoting someone. A needs-based review structure can be helpful, but processes are generally best built proactively rather than reactively, without the pressure of short-term business needs.
Quantuvis' research suggests that the best-practices model for hiring is a formalized, standardized process. Such a process allows firms to take a systematic, disciplined approach to hiring based on objective criteria designed to promote a higher probability that the right talent will be hired to fill each position within a firm.
Even when a standardized process exists, a firm must consider three variables in putting it into effect: When, where and who. When is defined by each firm's circumstances and goals.
Having a clear organizational strategy that drives when a firm hires is helpful when planning, preparing for and capitalizing on new hires.
In addition, understanding the typical inflection points at which advisors hire, in terms of a firm's revenue level, can be equally helpful in assessing when to add team members. While each firm is different, understanding the hiring trends of others can provide insight into when it may make sense to add to an advisor's team. The "Body Count" chart, shows the production level at which advisory firms have hired for various positions.
Once a decision to hire is made, the next question is where to look for suitable candidates. While the options are numerous, and there is no one right answer for every firm, Quantuvis' research finds some general trends that can help advisors determine where to look, based on the success of other firms.
The chart "Help Wanted,", reveals that local or regional job search websites and schools or universities are the most successful posting methods, although participants were not limited to one resource. Interestingly, the 25% of advisors were more likely to use multiple resources when conducting their search. These firms seem inclined to cast a wider net in hopes of attracting a broader pool of candidates matched against the skills they are seeking. The added expense of posting on multiple sources may well be a reason that other firms use a smaller set of resources.
Advisors often ask where they should seek qualified candidates. The answer is it depends on the situation and on the hire. For example, Monster.com may be an appropriate place to search for a generalized position like an administrative assistant, but the site may pose challenges when seeking more specialized positions like portfolio administrators or experienced financial advisors.
Whom To Choose?
Once advisors have determined when to hire and where to search, the next logical decision is determining whom to hire. In many cases, advisors make this decision in the heat of the moment, once they have reviewed résumés, conducted interviews and identified candidates from whom to choose. But without a clear view of the attitudes, behaviors, experience and attributes that the ideal candidate will possess, advisors are left to rely on instinct and intuition as they conduct interviews and make hiring decisions.
When hiring, advisors should remember two key pieces of advice:
- There is no perfect process for predicting a successful long-term hire.
- There are steps advisors can take to increase the probability of a successful hire.
Gut instinct will always be a part of the hiring process, as it should be. However, instinct alone does not provide a full set of information from which advisors can make thoughtful hiring decisions. Using a well-defined process built on a series of disciplined criteria and steps serves as the best-practices standard for hiring. By establishing a process and putting each candidate through it, advisors can take a systematic and objective approach that includes information gathering as much as instinct.
Beyond the traditional interview - which if not well designed can be one of the least effective methods for making hiring decisions - there are a variety of tools that can help advisors assess a broad set of candidate criteria. The chart "Evaluation Tools," below, shows the ones that advisors use most frequently:
- Psychometric profiling. More commonly called personality profiling, these resources can provide insight into a candidate's suitability for a position. Be careful when using these tools, however. Most do not account for experience, or emotional and professional maturity. They should never be the only deciding factor in hiring.
- Ability and aptitude tests. General skills testing can provide important information on candidates' abilities. It is never safe to assume a candidate has certain abilities or aptitudes just because they are listed on a résumé, or that he or she doesn't have them because they are absent.
- Job-specific skills testing. When hiring for a position that requires specific skill sets (for example, financial analysis or delivering client advice), job-specific skill testing can help assess how well multiple candidates fit the requirements for a position. The nature of skills testing can also vary. For example, testing candidates for technical skills is simpler and more straightforward than testing for the ability to analyze a client's retirement scenario, which is also different from testing the ability to deliver advice to a client based on such an analysis.
A Costly Choice
Best-practices hiring is a two-step process. First, advisors should clearly define the attitudes, attributes, abilities, skills and experience required for each position. Then, they should develop a hiring process that gathers information on how each candidate meets the pre-established criteria. Advisors following this process are more likely to attract and retain successful candidates over the long term.
Many advisors resist engaging in best practices because of the time and energy required to develop a hiring process. But consider the cost of hiring the wrong candidate or, perhaps equally as disappointing and diluting to the business, hiring a candidate who is marginally acceptable but never really masters the position. In short, the cost of hiring the wrong person, or the not-quite-right-but-not-bad-enough-to-let-go person, can be far more significant than taking the time to hire the right person the first time.
Stephanie Bogan is CEO and Natalie Doss is research manager of Quantuvis Consulting.
The information provided is for general information purposes only and is not intended to be legal, tax or investment advice. The information contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this information.
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Source: SourceMedia and Financial Planning (09/2010).