Why Revenue-Based Incentives: 6 Ways Your Staff Impacts Your Planning Firm’s Revenue

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

The inspiration for today's blog post comes from a presentation that practice management consultant Angie Herbers delivered at the 2012 AICPA PFP national conference back in January. In the session, Herbers was discussing the results of her White Paper "P4: Building Great Businesses by Creating Great Employees" and her research discoveries regarding Pay - specifically, that the most successful firms offer incentive compensation that is tied to the success of the business, ideally as revenue-based bonuses. In response, Herbers was challenged by an audience member: "Our staff aren't the ones that go out and get new clients to grow the revenue of the firm; and since our staff don't impact our revenues directly, they wouldn't be incentivized by this." Several other heads in the audience nodded in agreement.

Herbers disagreed, of course, and I similarly found myself reflecting on all of the ways that staff can absolutely impact the revenue of a firm, in ways that a principal wearing a business development hat probably never thinks about. The first half dozen that came to my mind included:

• The first person your prospects call. When a prospective client who is considering your firm calls for a first appointment, the prospect doesn't call you. The prospect calls your firm. Your staff answers the phone, has an initial interaction with the client, and only then transfers the call. Or alternatively, the staff member may be the one who actually pulls up your calendar to schedule the meeting on the spot. This interaction with your staff - not you - is often the first impression the prospect has of the quality and professionalism of the firm. If your staff is not well trained, effective on the phone, and welcoming to a prospective client, your new business - and new revenue - may be lost before you ever have a chance at a meeting.

• The first person your prospects see. Unless you sit in your own front lobby all day long waiting for your prospects and clients to arrive, you are probably not the first person your prospective clients will meet the first time they come to your office. Your staff member will be the prospect's first in-person impression of the firm. And as the research has shown, first impressions can be incredibly powerful in forming lasting opinions about an individual or business; in other words, whether we like it or not, the prospective client's first impression meeting your staff has a material impact on whether that individual ultimately agrees to become a new client for you and the firm. Which means a bad first impression experience or interaction with your staff can end your prospective client engagement - and new revenue - before it even begins.

• The new client experience. When a new client joins your firm, you may be focused on delivering a great financial plan with the best advice and wisdom for your clients. But that's not the only part of the new client experience. Signing up with a new planner often involves a number of disruptions for the client, as paperwork is completed, financial services products are purchased, accounts are transferred, etc. If your financial plan is brilliant, but the client loses sleep over two bounced checks because a money market fund was accidentally closed, and then has to take additional time to review the actions of your staff to make sure that none of the other account transfers are botched, your firm overall has done more harm than good with the new client. In the extreme, a new client who likes the advice offering may still change his/her mind and walk away entirely from a bad staff service experience.

• Who your prospects contact with new money. When your client has some new money to deposit into an investment account, who does the client call? Probably not you, personally, as you're not the one who actually handles the money and processes check deposits. Your client calls your staff. But how effective is that client's interaction with your staff? When your client has a new check to deposit, do your staff make it easy and convenient to complete the process, giving your client a positive experience? Or is depositing the check a hassle, with staff that is slow to return phone calls, making mistakes in putting money in the wrong account, or failing to communicate effectively when there's a problem or simply to confirm a completed deposit? If your clients have a negative experience completing the raw mechanics of adding money to their investment accounts, what's the risk they'll think twice about sending the next check your way?

• Who your prospects think of when referring. Most advisors I know believe that a client's decision to refer them and their firm is based primarily on their professionalism and the quality of advice that they provide. Yet the reality is that the decision to refer doesn't occur in isolation; it's based not just on quality of advice and professionalism of the advisor, but on the entire experience of being engaged with the firm. When was the last time you heard someone make a referral by stating "Well, their service really sucks, but the advice is so good you should work with the firm anyway"? The bottom line is that the service your staff provides can matter, a lot; in fact, because your clients may actually interact with your staff far more frequently than you, the service quality of your staff may actually be the first thing your client thinks about when referring. Yes, you might have regular meetings, but even those meetings are supported by half a dozen staff interactions, from scheduling the meeting, to confirming the meeting, to welcoming the client arriving at the firm, to helping with paperwork during the meeting, etc. Which means in the end, once again your staff impacts your referrability and therefore your revenue more than you may realize.

• Pulling together when times are tough. When the firm has challenges, your staff will either step up, or step back. Engaged staff that want to see the firm grow will step up; they may go out of their way to take burdens off the principals of the firm, to give them the opportunity to go out and meet with clients, or develop new prospects, to make up for difficult markets. On the other hand, disengaged and unincentivized staff may step back, responding to the pressure by doing the minimum necessary to get by and just watching out for themselves. The end result is clear: in difficult environments like the financial crisis in 2008-2009, your staff may proactively help the firm and its principals get through a rough spot, or they may disengage and leave an impossible burden on your shoulders. Which scenario will be better for your firm's revenue in the long run?

In other words, the bottom line is that while your staff may not be out on the streets trying to bring in brand new clients, your staff are still the ones who set first impressions for your prospects and impact the experience for a new first-time client. And it's not just about the fact that your staff can lose you revenue with a bad impression or experience with a new client. Your staff also are the ones who have the most ongoing service interaction with your existing clients... as those clients consider whether to give you more money/assets/revenue or refer their friends and family. Which means in reality, your staff actually impact your opportunity to get new revenue more than you may realize. And that's before we account for the fact that your staff has significant opportunity to really focus on freeing up your time to grow the business for everyone's mutual benefit, especially when times are tough... assuming they're incentivized to do so.

Of course, all of these ways that staff impacts the revenue of the business were implicitly captured in Herbers' research, which showed that firms paying merit-based bonuses averaged an 11.8% revenue recovery from the bottom in 2008 until the end of 2010, while firms paying revenue-based bonus came back an average of 34%! Simply put, revenue-based incentives to staff do matter. A lot.

So what do you think? Does your firm use revenue-based incentives for staff, or some other incentives? Have you ever been an employee under such incentive programs? What impact do you think they have?