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Filling the Moss Adams Void

A new firm is stepping in to create reports in the Moss Adams vein.

David J. Drucker, 04/23/2009

Advisors, accustomed to seeing annual reports for the FPA prepared by Seattle accounting firm Moss Adams LLP on the subjects of advisor profitability and compensation, may have noticed that no such studies have been issued lately.

Says Dan Inveen, formerly a senior research manager for Moss Adams, "It's hard to say when Moss Adams officially got out of the FA consulting business, but Eliza [Eliza De Pardo, formerly a senior consultant for Moss Adams Consulting Group] and I were the last individuals there specializing in the FA space and we both left as of the end of 2008." Hence, Inveen and De Pardo started their new research firm, FA Insight in November 2008. "Moss Adams waived any non-competes and allowed us to continue to work with clients we'd worked with in the past," Inveen said, "so we had a smooth transition out of the firm." But can a new research firm survive in the economy we're now in? "There's a strong demand for practice management assistance," he added. "The economy has actually worked in our favor."

Inveen and De Pardo established FA Insight not just to give themselves jobs, but to serve a clear need by the industry for reliable sources of business benchmarking information and solutions for addressing the key practice management issues affecting today's advisors. As did Moss Adams, FA Insight will provide consulting services and primary research to RIAs, broker-dealers and their representatives, trade and professional associations, fund companies, custodians, banks and accounting firms.

"We provide clients with actionable insight based on a powerful combination of unique marketplace data, consulting and analytical expertise, and deep knowledge of financial advisors and their business environment," Inveen said.

The first report FA Insight will deliver to the industry will be titled The 2009 FA Insight Study of Advisory Firms: People and Pay (much like the compensation studies Moss Adams used to produce). The firm's objective will be to provide the industry with extensive human capital data and insight to help advisors best manage their people.

"Our recent work with advisors strongly reinforces the importance of practices focusing more on their people as the foundation of their future success," De Pardo said. "It's all about getting the most from your team, structuring people and their roles in the right way and ensuring the retention of talent by protecting your precious human resources. The challenge for businesses today is to manage their people effectively to increase productivity and service delivery to clients while keeping the firm's expenses in check. We believe that successfully managing human capital during this time will differentiate those firms that are able to survive and grow and those that will continue to struggle even after markets return to a more normal state."

What will the people and pay survey and report cover? "Compensation planning will be central to the study," Inveen said. "However, based on the increasing demand of advisors to get the most out of their people, FA Insight will also be taking a close look at issues relating to organizational structure, performance management, development of expertise, talent recruitment and succession planning." People and Pay won't just be a continuation of the same old Moss Adams study, Inveen said. "I managed the last three Moss Adams studies, so we will be looking at many of the same issues, but we'll go a little heavier on the 'soft' issues, such as the extent to which having a well-defined organizational structure and well-articulated job responsibilities [makes for successful personnel management]. In hand with that, we'll look at how having clearly-defined career paths and career development opportunities are essential. And we'll scale back a bit; over the years, the Moss Adams surveys had great success, but they became victims of 'scope creep' wherein the studies got very lengthy, and it became more onerous for advisors to complete the surveys."

I asked Inveen about his statement to the effect that "managing human-capital issues during this time will differentiate those firms that are able to survive and grow from those that will continue to struggle even after markets return to a more normal state." Inveen said, "We're saying that advisors should avoid making deep personnel cuts at this time. At Moss Adams, we once examined the five-year histories of firms participating in our surveys and separated out the 100+ fastest growing firms. In the lean years following the 2000 downturn, firms that retained most of their employees found they were able to leapfrog their competitors when the market turned up again. In 2009, if firms have the intestinal fortitude to not overreact and let go their best people, if they look for other areas in which to realize cost savings, they'll be well-positioned going forward when market conditions turn around."

But what should advisors do in this market if they can't afford to keep valued personnel who will be needed when the economy turns up? "That's a tough one," Inveen said. "I'd encourage advisors to avoid thinking of their personnel as expenses but, rather, as investments. If you take personnel off the table in the process of managing expenses, what's left to focus on is, first, your business strategy. Is it still relevant, and is it aligned with your ability to add value in light of the current economic environment? Second, look at your client base. Is it homogenous in terms of clients' needs and demands for services, or is it all over the map? You can't afford to be all things to all people in tough times. And third, look for efficiencies. On the expense side, some more obvious things to look for might be better focusing your marketing efforts on your ideal client." So seek efficiencies and pursue cost control measures, Inveen said, but not at the expense of your people. Also, take full advantage of your vendors and custodians and all their many service offerings. Some advisors aren't even aware of technology systems, for example, that their custodians or broker-dealers make available at little or no cost.PAGEBREAK

To get at these human capital issues, Inveen said that the survey--which will start May 1, with results being published around September--will cover areas such as what he calls "firmagraphics"--basic financial data, such as the metrics of current and historical information on revenues, clients, and assets under management. "Then we're going to ask questions about staffing, specific positions in each firm, compensation rates, what firms are doing to manage staff performance, how they're motivating the right staff behaviors by linking compensation to individual achievements in line with the firm's goals and objectives, what firms believe are the best ways to retain quality staff, what they're doing to provide career development opportunities. And we'll strive to get a sense as to whether layoffs are occurring, what's driving them and what positions are affected."

In the past, Moss Adams has grouped respondents by size or lifecycle phase. "How we'll group the respondents," Inveen said, "will depend on the number of responses we get, but I envision using at least three to five size ranges. Firms of different sizes look very different; they have different needs and issues at each level of their development. We may also segregate data by affiliation model and service model." By "affiliation," Inveen means independent fee-only or fee-based RIAs and RIAs with broker-dealer or bank affiliations doing some commission business. We'll likely also break down firms as to whether they're 1) wealth managers, 2) financial planners, or 3) investment managers.

The completed study will be free to anybody who participates, and participants will also receive an invitation to attend a Web seminar in which the study results will be discussed. Nonparticipants will be able to buy the report at a price somewhere in the neighborhood of $250, Inveen said.

Why should you participate in this upcoming FA Insight study? To be able to compare your performance, your organization and your people practices with those of your peers. "Advisors will get a good feel for what the better performing firms in the industry are doing right now--performance being measured in terms of profitability, productivity and growth. We'll separate out the top performers and find out what they do--particularly in terms of people practices--that separates them from all others," Inveen said. "And finally, you'll get valuable compensation benchmarking to find out how you're compensating employees relative to the market. Our aim is to provide a roadmap for advisors in these times, which is more important this year than in past years due to our dramatically changed environment."

Asked what he thinks will be a surprising finding by the study, Inveen said, "My suspicion is that we may find advisors are doing better than we suspected. That's my hope, at least. We may find their profit margins are contracting some, but that advisors aren't doing too badly overall."

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