How to Build Effective Financial Advisor Team Structures

You know what they say: Two heads are better than one. In the case of financial advisory practices, that might be three, four, or many more.

Studies show that advisory teams can be more effective in running a financial advice business than sole proprietors. Teams are able to leverage the expertise and skill sets of a range of different people and viewpoints. This helps them create a better client experience that can solve more complex financial challenges for their clients. That’s probably why more than half of financial advisory firms operate in a team structure.

But not all teams are created equally. In order to build an effective financial advisor team, it’s important to understand what each team member brings to client relationships and what role each person should play.

This guide will help you understand the advantages of building a financial advisor team, how to leverage the unique skills of each team member, and then how to optimize the team structures to better support your growth and financial goals.

Advantages of Building a Financial Advice Team

Look at your favorite sports team. Is it made of only star players? Probably not. To win games, every team needs a solid offense and a killer defense. It needs team members who score big, but also more junior players who make the assists that let the star players shine.

It’s the same in the financial advice business. No one advisor has all the skills that are needed to tackle an ever-increasing range of complex financial issues that clients have. If you want your firm to grow and be able to service more clients, creating an advisory team structure is key.

Advantage #1: Higher revenue

According to research from  Kitces Research, advisory firms that use team structures are more productive than solo operators, regardless of the structure they use. These advisory teams have higher production and income.

Why is that? It comes down to leveraging the talents of each team member more effectively. By delegating support services to other team members, advisors can focus on building deeper client relationships and put themselves in the position to solve more complex financial situations. By demonstrating value, they are able to increase their wallet share further.

Advantage #2: Client satisfaction

With teams, financial advisory practices can build out specialized roles and responsibilities to address a sophisticated range of client needs. For example, by having CFPs and CPAs on board, clients can stay in-house to meet their financial planning, estate planning, and tax needs, instead of having to seek out those specialties elsewhere. As clients’ planning needs evolve, teams are able to provide more service, deepening client relationships. On a more practical level, clients are always able to reach a financial advisor when they have an issue.

According to research from Cerulli Associates, 73% of advisors believe that teams enhance the client experience. Further, the research shows that teams tend to experience lower rates of client attrition.

Advantage #3: Improves recruiting and retention

A team model is an excellent way for financial advisory practices to deal with the industry’s talent shortage. Rather than recruiting for senior advisors that may be hard to find, teams are able to develop that talent in-house. What’s more, teams create a growth mindset for next generation advisors. These professionals are able to see a pathway for their own professional development within the firm, bringing them greater professional satisfaction.

Advantage #4: Helps succession planning go smoother

Teams help ensure that a financial advisory firm isn’t entirely dependent on any one advisor. When accompanied by a thoughtful talent acquisition strategy, teams create pathways for younger advisors to transition into senior roles and take the firm into the future.

Potential drawbacks of FA teams and how to avoid them

While financial advisory teams have many advantages, there are also challenges. Being aware of the potential drawbacks can help you avoid them.

Drawback #1: Unclear responsibilities and expectations

It’s important that the skills and responsibilities of different team members are complementary, without significant overlap. Otherwise, team members might be stepping on each other’s toes, which can create frustration and inefficiencies—and ultimately poor client service. The key is having clear job descriptions and expectations about roles. Each team member must have a clear understanding of who is primary and who is back up.

Drawback #2: Compensation and equity disputes

In horizontal teams, disagreements are common when the teaming relationship isn’t formally documented. Disagreements can arise around compensation. Different team members may believe they pull more of the weight and therefore deserve a bigger piece of the pie. Or there may be disputes around who owns which relationship.

 These disputes can lead to additional challenges down the road. If you ever decide to part ways it may be unclear about who owns which relationship. The solution? At the outset, make sure to have a formal agreement in place that outlines how the relationship will work, detailing expectations for both parties, expense responsibilities, equity, vesting and what happens if you wish to dissolve the partnership.

Vertical teams may also encounter friction around compensation. Members working in support roles may feel that their efforts aren’t reflected in their paychecks. Consider using an incentive structure tied to team-based financial goals, as well as individual goal achievements. As the success of the business increases, incentives should increase too, even for team members without an ownership stake.

Different types of financial advisor (FA) team structures and how they improve your practice

How should teams organize themselves? There are several structures to consider.

Horizontal team structure

A horizontal team structure works best in firms where advisors have complementary skills that can come together to create a holistic experience for clients. For instance, a firm whose three founding advisors have expertise in portfolio management, retirement planning, and estate planning, respectively, can all co-lead the client relationship.

These teams can still employ staff in supporting positions to handle day-to-day interactions such as client onboarding and account maintenance tasks. But each one of the advisors are equally responsible for the client relationship.

A horizontal team structure helps to create a firm’s culture and vision because it brings in the top leadership. However, this type of structure can lend itself to conflict when different team members have different ideas about how to manage the business. These types of teams need to work hard to create open lines of communication in order to leverage each individuals’ strengths, and allow for healthy conflict.

Vertical team structures

Meanwhile, vertical teams are a top-down structure that put the senior advisor solely in the lead of the client relationship. With a vertically aligned team, the senior advisor maintains control of the client relationship and investment management decisions, but brings in other professionals to take on less critical tasks. Associate advisors and other staff work to support the relationship.

This structure has clearly defined duties for all team members, such as client onboarding and writing financial plans. The advantage of a vertical team structure is that it frees up the lead advisor’s time to nurture the client-advisor relationship and for prospecting. To give the vertical structure the best chance of success, each team member must clearly understand their roles and how each one serves the overall client relationship.

What are the roles? As we discussed, the senior advisor assumes the lead role for the advisor-client relationship, with primary responsibility for client acquisition, portfolio construction and analysis, and wealth management. Meanwhile, associate advisors provide support in areas of research and due diligence. Specialists have expertise in insurance, tax, estate planning, and other specialties that the advisor may not have a deep knowledge of. Finally, client service associates and administrative assistants perform the day-to-day operational tasks to keep things humming.

Hybrid team structures

A hybrid team structure borrows the best practices of both horizontal and vertical teams. One financial advisor might assume a leadership role as CEO. The CEO can then work with associate advisors to shape the firm’s overall strategy. Each of the associate advisors lead vertical teams and acts as the lead advisor. These teams are made up of planners and specialists who take care of client needs.

Financial Advisory Team Roles: Who does what?

Once you decide what type of team structure works best for your practice and skillset, you must assign roles to the different team members.  

Bear in mind that not all teams will have clearly delineated roles. Team members in small teams in particular may take on more than one type of responsibility. An assistant may handle administrative functions, but also help build financial plans and make trades. A para-planner may perform primary analytical functions, but also help with marketing and new business development. Nonetheless, these are all the core functions of a business that someone must cover for teams to function most effectively.

• Team leadership 
  This person or persons are the primary decision maker(s), overseeing the vision and decisions made within the organization. For larger firms, there may be multiple leaders leading and making decisions for divisions within the firm, such as marketing, investment strategy, planning, etc. In addition, a firm Manager can provide great value helping implement the vision of higher-level leaders and managing the day-to-day functions of all of staff.
• Client relationship manager
  Team members responsible for this function are the primary point of contact for clients and make sure they are well taken care of at all times.
• Business development
  Because client attrition is a natural part of running a business, someone on the team must be responsible for finding, attracting, and bringing new clients onboard. Often times this is the responsibility of the Lead Advisor or a designated New Business Development expert.
• Operations management 
  Team members who perform duties that help keep the business running smoothly, such as paperwork processing, IT, accounting, recordkeeping, HR, compliance, and others.
• Investment management
  These roles cover duties that require more specialized expertise in different wealth management areas such as investment management, financial planning, portfolio analysis, and insurance. Team members with these duties will need appropriate professional designations to perform these tasks.

Ensure your team is set up for success in today’s environment

Despite fears of a recession and several well-publicized layoffs, the unemployment rate remains low and workers have more leverage about setting the terms of their employment than they have before.

The pandemic forever changed our relationship to work. Between the Great Resignation and Quiet Quitting, employers must work hard to build the type of workplace that attracts and retains talent.

Developing a team structure within your organization is not only a great way to grow your firm, but also creates a career path for those that join your firm to grow with you as your firm grows.

Next steps

Workers want to be compensated well, but they also want jobs with purpose in order to do their best work. Younger employees may have different priorities than older employees. Make sure you’re building a firm where workers want to be. These are some of the workplace features prospective team members are looking for:

• Flexible work arrangements
  The pandemic made clear that workers can be just as productive working from home than being tied to a desk. Nearly half of workers want to work remotely, according to a survey from the Society for Human Resource Management.
• Diversity, equity, and inclusion
  The United States is quickly moving toward being a majority-minority country. Yet the ranks of the financial advisory profession don’t reflect that change. About82% of certified financial planners (CFPs) are white. Nearly 77% percent of CFPs are male. To attract today’s diverse client base, firms should look to create practices that reflect that diversity.
• Professional development opportunities
  Make sure your staff has ways to continue to grow professionally. Build in educational opportunities by including continuing education programs in your benefits package or offer to pay the cost for staffers who want to earn their CFP designations. Outline a career path for them with clear benchmarks that show what they need to do to reach the next level in their career. These programs build loyalty and ensure a higher level of professionalism in your firm.

The evidence shows that teams have a better track record of driving client satisfaction and boosting revenue. Forming a team takes time and effort and it should be pursued with care. Doing so has been shown to be worth the effort—both for your clients and your bottom line. If you’re ready to see how a team structure can help your financial advisory practice, speak with your AssetMark Business Consultant to learn more.