Help Wanted; A Junior Broker Can Provide A Big Boost To Your Production, Improve Your Client Relationships And Enhance Your Quality Of Life.

Copyright 2008 SourceMedia, Inc.All Rights Reserved Bank Investment Consultant

August 2008

PRACTICE MANAGEMENT; Pg. 29 Vol. 15 No. 8

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Help Wanted; A junior broker can provide a big boost to your production, improve your client relationships and enhance your quality of life.

Thomas Kane

Most top producers have considered adding an apprentice or "junior broker" to their practices. But what is the best way to do so? Seven steps can help you hire, train, compensate and manage an apprentice so you can move your practice forward.

1) WHAT TYPE OF HELP?

What do you need help with most? Is it predominantly administrative and/or service-oriented tasks? Someone to handle smaller transactions and provide additional branch/book coverage? Do you want someone to watch the market and manage money while you gather assets? The answers to these questions will help determine whether you need a sales assistant, a licensed assistant or an apprentice.

If you want help with administrative and service-oriented tasks, then a sales assistant fits the bill. If you need help placing trades or someone to occasionally turn a service call into a sale, then you'll probably want a licensed assistant. But if you want to clone yourself in an effort to expand your reach, improve branch/book coverage, deepen relationships and increase production, then an apprentice is the solution.

Develop a written job description outlining the roles and responsibilities you want your new hired hand to perform. Clarify the results you expect. You don't want to put an apprentice in a sales assistant role or you will fail. Defining the position will ensure that you don't unintentionally hire the right person for the wrong job.

2) WHAT'S YOUR ROI?

An obvious goal of hiring help is to earn more money. Look at your typical annual revenue growth rate. What production do you anticipate this year without adding help? What's the typical compensation for someone with the right skills? Your answers will help determine the return on your investment (ROI). Keep in mind that your production may slip at first while you train your apprentice. Once this is complete, your business should grow exponentially, particularly if you implement a realistic and rewarding development program.

Of course, you'll need additional revenues to offset any expense. Review the example ("Pay to Play" on page 30) of how to determine your ROI and complete this exercise for your business. The example assumes that the total compensation of the apprentice includes employee benefits (typically 20% to 25% of total compensation). Remember to include this when calculating your ROI.

Keep in mind that you are making an investment in your business and therefore should receive compensation for the associated risk. Is 19.44% a good ROI on your investment? How would your clients feel about such gains in their portfolios?

Complete this exercise before asking the bank to help offset expenses. Your manager will be able to see that you have done your homework and are serious about the return to you and the institution. For the purposes of this exercise, let's assume that you are fully funding the apprentice. Depending on your bank, you may be able to combine the apprentice's production with yours to move up the production grid and receive higher payouts.

3) REALISTIC RESULTS

It's difficult to quantify how much your production will increase after hiring and training an apprentice, but a good rule of thumb is to expect a 25% bump over your normally forecasted annual revenue growth. At first, licensing and training will decrease your results, but later on, increases usually will exceed that amount. I have had several apprentices move into advisor positions and produce over $1 million in annual gross dealer commissions (GDC).

A lot depends on your current practice and the roles you identify for your junior broker. Do you have a substantial book of clients that you haven't contacted? Do you find it difficult to keep your bankers happy because your territory is too large? Do you spend too much time on smaller transactions?

Unfortunately, projecting results is nebulous because many advisors don't execute successfully. Normal business activities draw them into putting out fires and failing to spend enough time managing and working with their apprentice. Therefore, it's hard to gauge your success against others because results can vary considerably based on the implementation. Nonetheless, you can ask advisors who have junior brokers what production increases to expect. Ask them what has worked and what they would do differently.

Consider other, less tangible, but important results of hiring help. Quality of life comes to mind. Perhaps you can finally take a vacation without feeling you are abandoning your branches and clients. You may also find your job more interesting. You will have to stretch your skill set to include managing, training and coaching, which may even open a potential career path for you. You may take a renewed interest in your profession, especially if you can delegate some of the more mundane transactions to the junior broker while you work on the more complex and interesting cases. This will help you expand as an advisor, increasing your overall value, competitiveness and success.

Finally, your relationships with your clients and branches should improve. Your ability to respond quickly to their needs increases if you have an apprentice. In reality, you're more than doubling your availability and production effectiveness, as wealthier clients now receive more of your time. Enhanced relationships should also increase your efficiency because you will have to resolve fewer problems.

4) FIND THE BEST CANDIDATE

Well-designed processes, training and compensation are key, but they won't overcome the problem of hiring the wrong person. I think of hiring in three basic terms-sourcing, selecting and securing the best candidates. Sourcing consists of drumming up as many qualified individuals as possible. Some sources of talent include: retail bankers (particularly those with direct customer contact), referrals, personal interaction with others in the service industry, trainees at brokerage houses and insurance agencies, sales assistants inside and outside of your firm, job postings and newspaper ads. The more candidates you source, the more likely it is that you'll find the right one.

Once you have sourced candidates, selecting the best one becomes your next challenge. Consider the three "Cs"-character, competency and chemistry. You want to design both quantitative and qualitative questions that delve into each of these dimensions.

Write out your questions and take notes; don't rely on your memory. Written questions provide a template to ensure you maintain control over the interview and get the answers you need to make a good decision. Remember that, while a portion of the interview is for providing information to the candidate, you should listen much more than talk. Ask for references or get a second opinion when possible.

When you do find the right candidate, you need to provide a compelling reason for that individual to join you. Typically, the best candidates are already employed in jobs that they like. Securing them usually revolves less around compensation than you might believe. Emphasize a positive work environment, career advancement, your management style and other factors that might sway potential hires. Above all, make sure you are honest and can deliver on your promises.

Work with your manager and human resources department throughout the process to abide by both the bank's and regulators' policies for job postings, interviewing and hiring. Make sure you follow the appropriate protocols so you don't upset your banking counterparts or peers.

5) THE COMPENSATION PLAN

While compensation may not be most critical in securing the best candidates, it's clearly important. There are three primary components to most compensation plans:

- Fixed component-salary;

- Variable component-commission or bonus based on performance; and

- Employee benefits

Most junior broker plans include each component, with certain considerations.

Again, determining the apprentice's roles, responsibilities and desired results is a good place to start. What percent of his or her time do you expect to allocate to sales versus service? What dollar or product limits, if any, will you put on the clients the junior broker works with? What type of compensation is the junior broker used to? What are others in similar positions at your bank or at competitors being paid?

A typical approach to compensation is to morph from a salary-based plan to one that eventually, is predominantly variable-based. You may want to pay some type of bonus each time the apprentice passes a licensing exam. As the candidate evolves from a processing and servicing role to a sales role (with branch and client responsibilities), adjust the compensation plan by lessening the fixed and increasing the variable components. Set the salary as a baseline, representing the amount you planned to produce without help. From there, pay a small portion of the combined total commission over the baseline and a greater share of commission on transactions the apprentice brings in.

Don't bring the apprentice along too quickly. Many brokers treat apprentices as partners, telling them how indispensable they are. This typically backfires. If you hire correctly, your apprentice is hungry and eager. Keep it that way by pacing their income with their contribution.

6) DEVELOPMENT PROGRAM

Random House defines an apprentice as "a person who works for another in order to learn a trade." While many advisors understand this responsibility, few take the time to create a measurable development program. Your likelihood of attracting and retaining quality apprentices hinges on your ability to deliver on your promise to teach them your trade. As you have success with your apprentices, others will want to work with you.

An apprenticeship may begin with very basic training, including obtaining the appropriate licenses. Clearly articulate your expectations for when and how the apprentice should obtain his or her licenses.

Most apprenticeships last about 18 to 36 months and you should set those expectations at the outset. Start with service-related issues so the apprentice becomes familiar with the processing of paperwork, systems and establishing relationships with back-office personnel.

Expect your apprentice to be impatient: You want high achievers. You will reach the point where your junior broker believes he or she is not learning anything. When this happens, recall the Karate Kid's frustration with his training process. "Wax on wax off" did not seem to apply to martial arts, but it provided the fundamentals necessary to succeed. Remember, you have the experience and know best.

7) MANAGEMENT SUPPORT

Assuming your bank doesn't have an established junior broker program, work through each of the previous steps, except hiring, before engaging your manager. A simple revision of the ROI exercise will show the return the bank can expect and help you convince management to contribute all or at least some of the expenses. You should realize that if your plan is sound and you truly believe your production will increase enough to offset expenses that you may have to go it alone. If you are not confident that this is the case, then your manager won't be, either.

After reading what it takes to add an apprentice to your practice, you may choose to forego doing so. That's okay, but you should know up front the commitment involved. If you're concerned that you'll be training a revolving door of apprentices, who, once they become productive, move on to their own territories, you're missing the big picture: The next logical step is to move your junior broker into an associate role and hire another apprentice. When I was at Legg Mason, the firm's top producer ($12 million in annual GDC) had nine associates. If he paid them each $100,000 per year, he would earn just under $4 million of net before taxes. At $200,000 per associate, he still topped $3 million in income! It's a win-win, but "to go higher you have to go hire."

Thomas Kane is president of Investment Program Solutions. Contact him at (703) 690-9995 or via email at [email protected]

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August 12, 2008