Boosted Employee Retention: New Horizons Achieves 98% Retention Rate
Executive Summary
New Horizons Financial, facing costly employee turnover and disruptions to client relationships, sought a solution to improve advisor retention. By implementing a comprehensive advisor development program incorporating regular performance reviews, mentorship opportunities, and a clearly defined career path, New Horizons dramatically boosted employee retention. The firm achieved a 98% retention rate, translating to an estimated $50,000 in annual savings related to recruitment and training.
The Challenge
New Horizons Financial, a growing RIA firm managing approximately $500 million in assets under management (AUM), was struggling with a significant employee retention problem. The firm's annual employee turnover rate hovered around 25% for financial advisors, significantly higher than the industry average of 15%, according to a recent Cerulli Associates study. This high turnover rate was creating a ripple effect of negative consequences.
The most immediate impact was the escalating cost of recruitment and training. Replacing a financial advisor cost the firm an estimated $20,000 on average, encompassing expenses such as recruitment advertising, interviewing, onboarding, initial training, and lost productivity during the transition period. This $20,000 figure included approximately $5,000 for direct recruitment costs, $10,000 for training and onboarding (including travel and lodging for external training programs), and $5,000 for lost productivity and administrative overhead. Annually, this amounted to roughly $50,000 in direct replacement costs.
Beyond the monetary burden, high turnover negatively affected client relationships. Clients frequently expressed frustration when their assigned advisor left the firm, requiring them to build trust with a new point of contact. This disruption often led to client attrition, resulting in a loss of AUM and decreased revenue. The firm estimated that each departing advisor represented a potential loss of $5 million in AUM, translating to approximately $50,000 in annual revenue based on a standard 1% AUM fee.
Further exacerbating the issue was a perceived lack of growth opportunities and adequate performance feedback among the advisors. Many felt unsure about their career trajectory within the firm, leading to a sense of stagnation and a decreased sense of value. The existing performance review process was infrequent, often lacking concrete feedback, and failed to provide advisors with actionable steps for improvement. This fostered a feeling of disconnect between the advisors and the firm's overall goals. Many advisors also expressed a desire for more mentorship opportunities to learn from experienced professionals within the company and expand their knowledge base in areas such as estate planning, retirement income strategies, and tax optimization.
The Approach
Rebecca Hayes, the newly appointed Head of Advisor Development at New Horizons Financial, recognized the urgent need for a comprehensive solution. She spearheaded the implementation of a multi-faceted advisor development program centered on performance feedback, mentorship, and professional growth.
Her strategic thinking started with a detailed analysis of the existing feedback process. She conducted anonymous surveys and focus groups with advisors to identify pain points and gather suggestions for improvement. The findings revealed a need for more frequent, constructive, and data-driven performance reviews.
Hayes implemented a new performance management system using Lattice, a software platform designed to facilitate regular feedback and goal tracking. The new process involved quarterly performance reviews, incorporating 360-degree feedback from peers, supervisors, and even select clients. These reviews focused on key performance indicators (KPIs) such as AUM growth, client retention rate, client satisfaction scores (measured via Net Promoter Score or NPS), and adherence to compliance regulations.
To address the desire for mentorship, Hayes established a formal mentorship program pairing junior advisors with senior advisors. Mentors provided guidance on various aspects of the business, including client acquisition strategies, investment portfolio management, and financial planning techniques. Each mentor-mentee pair committed to meeting at least twice a month to discuss progress, address challenges, and exchange ideas. The mentorship program was carefully structured to ensure consistent quality and alignment with the firm's overall goals.
Recognizing the importance of continuous learning, Hayes partnered with online learning platforms such as Kaplan Schweser and the CFP Board to provide advisors with access to a wide range of professional development courses and certifications. The firm offered tuition reimbursement for advisors pursuing designations such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA). In addition, the firm organized internal workshops and seminars led by industry experts on topics such as behavioral finance, tax planning strategies, and estate planning techniques. A dedicated budget was allocated for each advisor’s professional development, encouraging them to proactively seek out opportunities to enhance their skills and knowledge.
Finally, Hayes worked with senior management to create a clearly defined career path for advisors within the firm. This career path outlined the steps required for advancement from entry-level positions to more senior roles, such as senior advisor, team leader, or partner. The career path also clarified the expectations and responsibilities associated with each role, providing advisors with a clear understanding of how they could progress within the organization. This involved creating specific, measurable, achievable, relevant, and time-bound (SMART) goals for each advisor and providing regular feedback on their progress towards these goals.
Technical Implementation
The success of New Horizons Financial's advisor development program relied heavily on the effective implementation of several technical solutions:
- Lattice for Performance Management: The firm selected Lattice to streamline the performance review process. Lattice's features, including 360-degree feedback, goal tracking, and real-time performance dashboards, provided advisors with a comprehensive view of their performance. The system integrated with the firm's CRM system to automatically track key performance indicators such as AUM growth and client retention. A key component was the weighting of different feedback sources. Supervisor feedback carried a 50% weight, peer feedback 25%, and client feedback 25% in the overall performance score.
- Online Learning Platforms: The firm subscribed to Kaplan Schweser and utilized the CFP Board’s website for on-demand advisor training. These platforms offered a wide range of courses covering various financial planning topics, including retirement planning, investment management, estate planning, and tax planning. The platforms also provided access to practice exams and study materials for professional certifications such as the CFP and CFA. Completion rates and quiz scores were tracked to measure the effectiveness of the training. The firm’s learning management system (LMS) tracked advisor progress and automatically notified managers when advisors completed required courses or certifications.
- Data Analytics & Reporting: A custom dashboard was created using Tableau to track key metrics related to employee retention, performance, and engagement. This dashboard provided insights into trends in employee turnover, performance ratings, and engagement scores. The dashboard also allowed the firm to identify potential areas for improvement and to measure the effectiveness of its advisor development program. The analytics team developed a predictive model to identify advisors at high risk of leaving the firm based on factors such as performance ratings, engagement scores, and tenure.
- CRM Integration: Lattice integrated directly with the firm's Salesforce CRM to track client interactions and AUM growth attributed to each advisor. This ensured that performance reviews were tied directly to measurable business outcomes. Sales figures for the previous 12 months were compared to those of the prior 12 months to measure AUM growth. Client satisfaction was measured via Net Promoter Score (NPS) collected through Salesforce surveys sent after each client interaction.
Results & ROI
The implementation of the advisor development program yielded significant positive results for New Horizons Financial:
- Employee Retention Rate: The employee retention rate for financial advisors increased from 75% to 98% within one year of implementing the program. This dramatic improvement significantly reduced the cost of recruitment and training.
- Cost Savings: Based on the previous estimate of $20,000 to replace a financial advisor, the 98% retention rate translated to an estimated annual savings of $50,000 in recruitment and training costs. This calculation assumes a team of 10 advisors; previously 2.5 advisors would need replacement annually (25% turnover), while the new program reduced that need to 0.2 advisors annually (2% turnover). 2.3 fewer advisors needing recruitment at a cost of $20,000 per advisor equals approximately $46,000 in savings. (Rounding up for ease of understanding).
- AUM Growth: While not the primary goal, the improved advisor engagement and skillsets contributed to an overall increase in AUM growth. The firm experienced a 15% increase in AUM year-over-year, exceeding its target growth rate of 10%.
- Client Satisfaction: Client satisfaction scores, as measured by Net Promoter Score (NPS), increased by 10 points, indicating improved client loyalty and referrals.
- Advisor Engagement: Employee engagement scores, measured through regular surveys, increased by 25%, reflecting a more positive and motivated workforce. Specific feedback indicated advisors felt more valued, supported, and equipped to succeed in their roles.
- Training Completion Rates: Course completion rates on online learning platforms increased by 40%, demonstrating a greater commitment to professional development among advisors.
Key Takeaways
Here are some actionable insights for other RIAs and wealth managers looking to improve employee retention:
- Invest in Advisor Development: A comprehensive advisor development program is crucial for attracting and retaining top talent. This program should include regular performance reviews, mentorship opportunities, and access to professional development resources.
- Provide Regular and Constructive Feedback: Implement a performance management system that provides advisors with regular and constructive feedback. This feedback should be data-driven, focusing on key performance indicators and actionable steps for improvement.
- Foster a Culture of Learning: Encourage advisors to continuously learn and develop their skills. Provide access to online learning platforms, tuition reimbursement for professional certifications, and internal workshops and seminars.
- Define a Clear Career Path: Create a clearly defined career path for advisors within the firm. This career path should outline the steps required for advancement and clarify the expectations and responsibilities associated with each role.
- Measure and Track Key Metrics: Track key metrics such as employee retention rate, AUM growth, client satisfaction, and employee engagement to measure the effectiveness of your advisor development program. Use data analytics to identify areas for improvement and to demonstrate the ROI of your investment.
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