G2: Building the Next Generation. Palaveev Philip

to cross on the career path for G2 advisors. Still, I hope this book makes the hike easier and perhaps more fun!

Philip PalaveevMay 2017

      Acknowledgments

      I would like to thank all the amazing professionals who are part of the G2 Leadership Institute. This begins with the G2 participants whose experience and thoughts helped shape much of this book. I have also learned so much from my colleagues at the program – Sam Allred, Tim Kochis, and Susan Dickson.

      I am grateful to every client I have ever worked with. It is the nature of consulting that you bring knowledge to every engagement, but you also learn from every professional you talk to. I have been fortunate to work with some of the best firms and best leaders in the industry.

      Finally, I want to say what joy it has been to practice together with my team at The Ensemble Practice. I am excited to work together toward building the premier firm in the financial services industry.

      CHAPTER 1

      Who Are G2s?

      There were about 30 people in the room. They were gathered for a study‐group meeting and half of them were founders who years ago had started some of the largest and most successful advisory firms in the country. The other half were younger. They had joined the firms in the last 10 years as employees and had over time risen to become owners and leaders in their respective organizations. This collection of firms was called the younger group G2, short for second generation, to signify that they were not founders but rather the next generation.

      A founder by the name of Richie Lee stood up. He spoke slowly and his words were rather poetic. “If a business is like a painting,” Richee said, “I want my business to be a beautiful painting that people can see even after I am gone. I want it to be a painting that lasts and endures.”

      Becky Krieger, one of the G2 participants, got up to respond and what she said, to this day, best illustrates for me the dynamic between the generations of leaders inside advisory firms. “Richee,” she said, “You have to remember we are artists, too. We are not here just to preserve your painting. We are here because we want to create our own works as well. We want to add to your painting and we want to paint our own!”

      Rebecca represents the G2s whom this book is about. They are talented, ambitious, and driven. They are experienced and accomplished in their profession. They are young but not youngsters; they have one or two decades of achievements behind them. They are looking to continue the work of the founders and eager to build and create their own. They are the future of the advisory industry and they are ready to take over.

      G2 has already begun to take over, in fact. Many G2 members are owners (partners) in their respective firms. Some are COOs and CIOs. G2 professionals are managing client relationships, leading teams of people, and striving to be leaders.

      Every firm needs a G2 if it is to have a chance of lasting beyond the involvement of the founders. Firms that lack a G2 or those where G2 is underdeveloped will likely dissipate or be merged and sold into bigger entities over the next 10 years. Firms that have developed their next generation, in contrast, will be magnets for other practices who want to merge with them. They will not run out of energy or people as the founders approach retirement.

      G2 may be the future of the advisory industry, but it cannot take over yet – not without some help from firms and the industry at large. Having spent most of my early professional career as G2, I can easily relate to the challenges facing the next generation. Some are challenges that G2 members created themselves, and others are deficiencies in the environment where they grew their careers. Now that I am founder of my own firm and working with G2 partners, I can also relate to the feelings of the founders. It is difficult to trust a generation that is so eager but still unproven.

      I have written this book as a bridge between founders and G2 because, ultimately, the truth is this: G2 is the future of the industry, and successful firms need to hire and embrace these younger professionals. Firms that fail to do so will have short remaining lifespans. To flourish, G2 members need to learn not only how to be good professionals (i.e., how to attract and service clients) but also how to be good owners, managers, and leaders of their firms. They need to learn how to make good decisions, put the best interests of the business first, and inspire others. Good firms will find a way to cultivate their management skills, educate them about being owners, and give them the opportunity to become leaders.

      I hope you will follow me in this exploration of why G2s are the future of the advisory industry.

      Defining G2

      The term G2 includes the cadre of professionals inside advisory firms who:

      • Are not founders and did not join the firm in the first 10 years of business – in other words, they were not part of the start‐up phase of evolution.

      • Have at least five years of experience in their field – they are experienced and not just starting out.

      • Occupy key positions in their firms – they are lead advisors or team leaders in operations.

      • Are considered future owners or are already owners in their firms, meaning they are invested in the future success of the firm in career, emotional, and financial terms.

      • Are seen as successors to the founders, not necessarily individually but as a group.

      • Most of all, self‐identify as future leaders of the firm who both preserve the legacy of the founders and look to take the firm further and make it better.

      Thousands of G2 professionals are already rising to prominence inside the advisory industry. More importantly, thousands are missing entirely. According to the 2016 Financial Performance Study of financial advisory firms produced by The Ensemble Practice LLC, the typical advisory firm started in 1997.1 Today, those firms generally have more than 20 years of history and have grown to be sizeable and successful organizations. As these firms have matured, their need to hire more people has increased. Unfortunately, not many firms have.

      A well‐publicized report by research firm Cerulli Associates indicates that 43 percent of advisors are over the age of 55 and intend to retire in the next 10 years (although intention is not the same as action).2 The same report claims that only 11 percent of advisors in the industry are younger than 35. These numbers cause research firms to predict that we will be missing as many as 280,000 advisors in the next 10 years, after accounting for continued growth and retirement.

      The 46 percent of advisors who fall between these two age brackets – younger than 55 but older than 35 – are the subject of this book. However, age is not a factor that defines G2. The focus is on professionals who are experienced and accomplished but have not yet had their turn at driving the business.

      Developing the Next Generation Is Critical

      Too often the development of G2 is equated with succession. While the logic here is solid – develop G2 successors or you will have to sell the firm in order to retire – it is also incomplete. Firms need G2 for growth! The typical advisory firm doubled in size every four to five years in the period between 2003 and 2014.3 While growth has slowed down in the past three years, firms continue to need more people, more professional capacity, and, most of all, more leaders.

       G2s as Agents of Growth

      G2 professionals are not just successors. They are agents of growth who bring skills and talents firms otherwise would not have. As a firm adds more client relationships, it needs professionals who can manage those relationships. In my experience and depending on the business model, a lead advisor can manage only 40 (for multifamily‐office and ultrahigh‐net‐worth firms) to 150 (for general financial advisory firms) client relationships. If client rosters exceed those numbers, the firm must find a new advisor.

      The hope of every firm is that its advisors will be just as talented and dedicated as the founders when working with clients. What is more, it is not just the hope

1

InvestmentNews Research, “2016 Financial Performance Study” (InvestmentNews, 2016).

2

Cerulli Associates, “Advisor Metrics 2013: Understanding and Addressing a More Sophisticated Population.”

3

See note 1.