Teams in the financial services industry have been around for decades. We have read and often marveled at the top Barron’s or Forbes profiled teams. We read industry surveys where teams outperform sole practitioners. Additionally, we see ever increasing client expectations for advice, service and a differentiated experience. So, should teams become the industry standard? We at Red Rock Strategic Partners believe teams should be the standard and we will explain why.
Before we discuss the reasons to form and support teams in your organization, let’s clearly define the characteristics of a team. A team is a group of professionals who come together to comprehensively serve a single client base. This group maximizes their unique skills and talents to deliver an unparalleled set of services and solutions. A team operates collaboratively by leveraging tools, technology and communication systems to optimize their capabilities for the benefit of the client base. This collective arrangement creates scale, maximizes the economic value of each relationship and differentiates the team from its natural competitors.
Why should teaming be at the top of a financial institution's priority list? Here are five important reasons:
The revenue power of teams. According to most industry data sources, teams outperform sole practitioners 3 to 1. In fact, according to the annual compensation survey from WealthManagement.com, teams produce almost 3 times the revenue of the sole practitioner. Furthermore, the average client size is twice the size of the individual advisor. The interdisciplinary team construct provides greater value to clients; as a result, assets and revenue growth follows.
A differentiated client experience and higher client retention as a result of teaming. According to research by E&Y, clients leave financial advisors for several major reasons including: poor investment performance, high fees, poor service quality, and wealth transfer to the next generation. Teaming successfully mitigates these reasons for attrition by having a diverse set of team members with different skills and competencies, a scalable service model, and the ability to communicate proactively to address multiple financial issues and priorities.
Asset retention as clients transfer wealth amongst family members and create lasting legacies. Between the senior generation (70+ client) and the baby boomer generation, nearly 30 trillion dollars will change hands over the next 30 years. This massive shift of assets requires a diverse team construct and a service model that addresses these critical wealth transfer issues. Teams that are diverse in age and gender will win these assets. This is massively important going forward and should be a part of any teams’ business plan.
Teams mitigate the risk in the aging advisor population and can solve the succession challenge. Investment News recently cited that 50% of financial advisors are over the age of 50 and 20% of advisors are over the age of 60. While most of these advisors have many years in their working careers, the time is now to develop, deploy, and create credibility for the next generation of talent within the team. Our experience has shown that it takes on average 3-4 years for younger team members to earn credibility and trust from top clients. The earlier this becomes a core part of the business planning process, the more successful the transition will be.
Teams generate energy, focus, competency development, collaboration and many other attributes that employees want in their jobs. At the end of the day, our business is about human relationships. The most successful teams in the industry create a level of esprit de corp that makes our business fun and exciting. The ability to collaborate, share ideas, win and lose together is core to great teams. Much like great sports teams, the ability to wear the team jersey, strive for greatest and struggle together are attributes that make teams different and special. Most employees want those attributes in their working life. This leads to talent retention and job satisfaction.
As you think about the reasons to make teaming a core imperative at your organization, also consider the challenges that your company has in achieving this objective. What norms are in place that prevent teams from forming? What economic, geographic, financial or other barriers have been placed on advisors that restrict the growth of teams? Has your organization thought broadly about new and creative ways to foster the development and growth of teams and teaming? In part two of our teaming discussion, we will outline some of the barriers that we see and how to move forward with this important initiative.