Transparency on the part of both
firm and advisor is imperative. This
is of little use, though, if potential
problems that are spotted merely get
swept under the rug. In fact, this is an
excellent way to ensure a mismatch.
“Nobody wants to be saddled
with an advisor who isn’t going to be
happy and productive,” says recruiter
Mark Elzweig, whose eponymous
executive search firm is in New York
City. “I’ve rarely seen anything nefarious when it’s not a good match;
more often, it’s that people don’t focus on details. Details matter. In a recruiting situation, details are critical.”
And, under the “details” rubric:
When you find a good-fit advisor,
be sure to draw up a pre-hire letter
stating explicitly what you’ve discussed and have assured him or her.
If you’re paying a signing bonus, a
contract is necessary as well.
Guess what? Financial advisors are number-centric. But when
it comes to adding FAs, principals
must look beyond figures and also
zero in on the human side.
“It makes no sense to just consider AUM, the number of years
the advisor has been in business and
the amount of friends [and acquain-tances] they have. You can’t forget
compatibility, chemistry and personal
traits like integrity and character—
factors that make for a great long-term partnership,” says Alyssa Riedel,
co-founder-chief marketing strategist
of Riedel Strategy, a Newport Beach,
California-based social sciences-focused research firm specializing in
the financial services industry.
The first step to finding a good-fit
advisor is to clearly define the role she
or he is to play in your practice and
your expectations to fulfill it. Will the
FA manage your business or gather
more assets to boost revenue? Will the
advisor do both? Will their book com-
plement yours or bring in a new, ad-
ditional client niche? Will they team
up with you or have separate clients?
Once you’ve begun the interview
process, serious due diligence is a
No. 1: Be sure that your platform
can support the advisor’s business.
“Duh,” you say! Unfortunately, that
basic often isn’t nailed down before
sealing a deal. For example, if an FA
has international clients who trade
foreign stocks and bonds, be sure your
firm can support that type of activity.
Or: “If I have a practice where
60% of the revenue is coming from
advisory and 30% comes from mu-
tual funds and variable annuities,”
say Daley, based in Chicago, “I
don’t want to bring over a financial
advisor who’s doing a lot of REITs,
stocks and fixed income because I’m
not aligned to support that.”
Certainly, the FA’s style of business
is a major matter too. Let’s say that
your practice is fee-based, but you’re
thinking of adding a broker who’s
transaction-oriented. Is that a swell fit?
And bear in mind: It’s smart not
to make compensation an elephant in
the room. Right up front, address this
issue so that, should what you have
in mind be far from the FA’s expecta-
tion, no further time will be wasted.
“Early in the conversation, keep
that discussion broad; it can even be
spelled out in ranges,” Daley notes.
“But if you’re looking to pay some-
one solely on commission and they’re
expecting to receive a base salary, that
should be known right away.”
Once you’ve completed thor-
ough due diligence—including
checking for client complaints, fre-
quent firm changes and, via a credit
report, financial stability—it’s time
to zero in on that vitally important
issue: personality fit.
Alas, here intuition may fail you.
“We need to get our gut instincts
“We need to get our
in check because behavioral finance
tells us that our gut instincts often
are not right,” Riedel says. “Adding
talent to your team is a lot like in-
vesting in the market, where advi-
sors are keenly aware of behavioral
finance principles that are at work
and are watching out for biases.”
Riedel continues: “The same bi-
ases are in place when investing in
human capital.” For example, “one
bias is ‘planning fallacy,’ a tendency
to produce forecasts that are unre-
alistically close to best-case [specs].
Another is ‘anchoring.’ That’s insuf-
ficiently adjusting prior estimates
when new information is received.
These play a role in messing up our
decision-making in hiring people.”
Psychological tests can be effec-
tive tools to quantify personality
qualities—some even assess integ-
rity—and to make certain you’re not
falling prey to behavioral-finance bi-
ases. First be sure to define the qual-
ities that are most important to you.
gut instincts in check
finance tells us that
our gut instincts
often are not right.”