John Lefferts' Blog

Tuesday, September 2, 2014

The Wave

Envision sitting on the beach watching the ocean waves come crashing in… one after another. Notice the consistency, regularity and continuity of the waves. The ocean swell that sets up the crest comes crashing onto the beach and then washes out…one after another…without fail…

I was giving a platform speech to about 4,000 colleagues back in the mid-90’s and the huge stage backdrop was a video of ocean waves crashing onto shore with the words above spoken in a James Earl Jones-ish slow cadence voice as I slowly entered the stage. The intro was for my talk about a system to systematically recruit, select, induct and develop new advisors into the business. The system was titled “The Wave” in part because I’m originally from San Diego, but mostly because it single mindedly focused on each phase of the recruiting and development process with the discipline, regularity and consistency of ocean waves. My management team would go through the process in 4 month intervals-3 times a year…one after another. We were always recruiting, but a focus was to recruit to each respective beginning of a wave thereafter successively pulling them through the process of Selection/ Licensing/ Induction/ Marketing/ Training/Contracting. The first wave started January 1st and pulled the recruit through each phase in a systematic process that ended 4 months later. Then in May, the next wave started again ending in August. The last and most important wave began September 1st and went through it’s phases to the end of the year. This systematic approach was very transferable with several sub-systems and led to 4 year retention and development rates at about 80% where the industry averages were about 15%.

I bring this up because I often wonder why the industry is having such a difficult time bringing in the next generation of advisors. We have perhaps the greatest opportunity for new young professionals in all of business yet the numbers coming in are well short of replacing our aging advisors at a time when the demand for what we do is only increasing. For the longest time, the wirehouses and large insurance agency distribution have been the farm system for the independents. Firms like my alma mater AXA Advisors would spend on average $200,000 per head to get a single advisor to their 5th year often after which the then successful advisor would leave and go independent (RIA/Indy B/D or Hybrid). This is one reason why many product manufacturers are getting out of the recruiting business. It is simply too expensive given the poor results. In the meantime, Indy’s keep trading aging “sore arm pitchers” who move from one B/D to the next. But what happens when the farm system dries up? Who is going to bring new blood into the business to address the massive succession problem that threatens our collective industry (whether you’re B/D, RIA, Wire, etc).  In the near term, we’re seeing massive consolidation and convergence whether it’s new models like Hightower or United Capital growing their ranks or Schorsch's ARC gobbling up every little B/D finding it too costly to fly solo. In time, that activity will slow and then what? When the average age of industry advisors inches dangerously close to the average lifespan, what do we do then? This is a real problem that needs to be fixed.  

"Strategy must have continuity. It can't be constantly reinvented"

       -Michael Porter
I applaud those independent firms making an effort to bring in new talent. But to date, I’ve yet to see or hear of any that have been successful on a scalable level. Like anything else in our business, it’s not the plan or the strategy, but the execution on the strategy that makes the difference of success or failure. I’m in the process of developing a thesis for a “Wave” system for the independent hybrid (or tribrid) model. It will need some adjustments from what was developed years ago, but frankly, I sincerely believe it can work. Can independent firms with notably thin margins successfully recruit new advisors into the business? What do you think?