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Growth Strategy for a Successful 2023

We talked with Eliza about:

  • Human capital challenges surrounding internal growth, redeveloping recruitment practices, and the impact M&A activity has on the firm as a whole
  • How strong leadership engagement and detailed implementation schedules are required for strategic initiatives to truly take flight
  • Addressing compensation and cost of living adjustments amidst high inflation and decreased revenue as firms move into 2023

About Eliza De Pardo:

Founder and director of De Pardo Consulting, Eliza De Pardo brings a wealth of research-backed insights on the talent shortages and growth challenges faced by financial services firms as they move from 2022 into 2023. With her expertise in human capital management, Eliza educates as well as aids firms in developing strategic implementation practices that coalesce around a growth strategy.


Featured Resources 

Full Audio Transcript

Lauren Hong: All right. Well, Eliza, thank you so much for joining us today. I was reviewing your LinkedIn like I was sharing just before the call, and so impressed with your background having worked at TD Ameritrade and then also Moss Adams and holding a number of consulting roles. And then now you've consulted with hundreds of financial advisors and continuing to choose firms I should really say. So I'd love to hear how you got started in your consulting practice and launching it independent of working with some really big names. 

Eliza De Pardo: Thanks Lauren. Thanks for having me along. I always describe it as a very long path to get to this point but I think there probably are defining moments in anyone's career you can point to that kind of got you where you are today in terms of founding a firm. But my career in consulting in the US really started with Moss Adams back in 2006, around that time I was recruited and moved to Seattle from Western Australia and worked alongside Mark Diversion, which was a fantastic experience. That team was wonderful to work with. And then the financial crisis hit me. Many people know Moss Adams kind of closed up their consulting group at that time. And I co-founded FA Insight with Dan Invi, which was a research and consulting firm that exclusively served the US financial services industry. And Dan and I produced a wealth of research together and consulted with institutions as well as larger advisory firms. And we had a great run for many years. And then were acquired by TD Ameritrade back in 2016, who was actually our biggest client at the time. And actually we stayed on with TD Ameritrade. Dan and I both did a lot of work with them, building more research, producing their practice management programs, white papers guide, all sorts of tools for advisors. So it wasn't until the Schwab acquisition of TD that I decided to go out on my own to consult and work independently. 

Lauren: Fantastic. 

Eliza: Kinda a long path. 

Lauren: Yes, with such great experience and connections and all of that. So consulting can go so many different directions, from business strategy to practice management, a variety of things. And for your firm, what are you really focused on or what are themes that come out of your consulting work and talking with different firms? 

Eliza: Well, at the moment I would say the majority of the consulting work in particular is focused on human capital management. We have an area of expertise here. We've done that for many years, but there are so many factors in the marketplace that are creating human capital challenges for advisory firms at the moment so that tends to be where we're engaged. Areas like organizational design, compensation planning, performance management, and all the human capital issues kind of associated with those buckets, if you like, where folks need help generally. And then we do a lot of work in strategic and really supporting firms, larger firms in understanding, coming together around a growth strategy and being able to execute on that strategy. So that's from a consulting perspective and from a research perspective, we like to really cover all areas in the market. And I've found that over my career in consulting the more depth of data you can have available to you to consult, the better that is. And the more consulting experience you have to feed into the research, the better that is for the research. So those two elements are really important to work together. But generally I would say human capital is probably the one area that really films the most challenged right now. 

Lauren: Yes. Can you share a little bit more about that? I mean, it's sort of an interesting time, right? I feel like I've seen a lot of firms that are going through M&A activity or they're trying to hire and find that right culture fit or the right growth structure. What sort of obstacles are you seeing with firms as they are trying to grow or is it just a sort of like a boon of growth? What patterns are you seeing? 

Eliza: Well, this year in particular has been a rough year for advisory firms. The markets have been very uncooperative for the typical firm, and I think most firms are gonna be down in terms of revenue this year. But in addition to that, the acute talent shortage now in the industry is probably one of the most significant challenges for firms in terms of being able to sustain rates of growth, which you could imagine the sort of disruption it causes in a business. When you lose somebody, a talented team member who leaves the business, that becomes harder to replace. It might take you six months or longer to find the right fit to replace that individual. And you've got this kind of gaping hole in the firm for a period of time. And if you experience more than one departure, and it's kind of common at the moment, many firms are sort of struggling a little bit with the retention of talent. This will over time make it harder and harder to sustain rates of growth. And certainly if you're losing talent in the area of business development, client acquisition, of course the impact is felt even more significantly. So the acute talent shortage is a challenge. If we combine that with economy-wide impacts, like very low unemployment right now, very high inflation, all of these things are combining, including what we experienced last year, which was this concept of the Great Resignation back in August, which kind of hit its peak. All of these things are combining to make it extra difficult for firms to grow their pool of talent in a really sustainable way. So I think firms have to be really focused on how they're going to develop talent internally and perhaps change their approach to recruitment to perhaps have more luck in terms of getting the right people into the business. 

Lauren: Yeah, we see it too. I mean, it's like you said, the Great Resignation, right? Which is a nationwide trend that's happening. But I feel like in this industry, regardless, it's really hard to hire; the right value set and the importance of the hire is so critical, right? Cuz it's that client relationship and then holding onto that client relationship for quite some time. It's a relationship-first business, right? So it's not just, okay, check, check, check, have you got this credential but also is there a value set there, and a reflection of how the firm is looking to present themselves outwardly. 

Eliza: Yeah, that's very true and I think firms are extra cautious whenever they're recruiting roles that will be really close to the client relationships. They do have to meet firm cultural values. They have to be really in alignment with the way the partners are running the firm to be a good fit for clients and for the business. So it takes a little bit more effort to try and figure that out when you're recruiting, but I think it's worthwhile taking a little extra time to make sure those decisions are on point, because of course any errors made can be kind of just ongoing, and you don't want that ongoing turnover of talent as we make recruitment missteps if you like. And oftentimes, as you know, I've met firms over the years where their retention of talent has been a real problem. Oftentimes it comes back to their recruitment efforts and how well or not so well they're going through the recruitment process. In some cases they're finding they're getting higher rates of turnover because they're not doing such a good job upfront. 

Lauren: That's fair. So I have to ask you this—it has been a weird year, right? With the markets and coming off of COVID and all of those sorts of things. And as we're going into the new year, if you were to give one piece of advice, especially to C-suite ownership about the look ahead around human capital management, what would be that nugget of advice you would give them that you feel like would set them ahead? 

Eliza: I think as it relates to the growth of talent, I think you've got to invest heavily in your own development pipeline if you like. So creating a career path, showing talent what the future could look like for them in the business, but then investing really heavily in the development of talent, whether that's internal training, role shadowing, mentoring or engaging external trainers to be able to support the development of your staff. I think it's incredibly important given how hard it is to recruit, given how hard it is to retain talent. I do think firms really have to focus heavily on building development programs. But related to that, we're going into performance review time for the end of the year for 2022, and many firm owners and executives are gonna start having conversations around compensation. And I do think that being extra prepared this year for what will be challenging conversations around pay is important if you want to make sure team members feel valued and we're not rocking the boat and there are no surprises, nasty surprises, for anybody. I think you've gotta be extra prepared for your compensation conversations this year. 

Lauren: Yep. That's absolutely fair. And that's actually really good advice because you're right, it's a very competitive market right now and it's easy to be able to have shiny objects with big numbers, but doesn't necessarily mean it's the right culture fit too. So that's great advice. So just learning a little bit more about kind of the ethos you're leading with too, it sounds like there's a lot around positive change but how do you handle that when things aren't so positive or are there things that you try to really lead forward with so when you come into working with a firm that might be an X state, how do you get them sort of to that next state so it's leading versus just cyclical? 

Eliza: Yeah, I think whenever a firm engages any external consultant to come in and help solve challenges, you have to be really honest with them about the kind of effort it takes to be able to drive change in a firm. The firms I've worked with over the years that have really excelled in the implementation of change are those businesses that have really strong leadership who take a very keen interest in the initiatives you're working on. And they do a really great job of communicating regularly with the team. They also have the capacity to be able to do the work that's required to implement the change. So for example, if you undergo a piece of business in trying to transform parts of the business, you don't really have the capacity to manage that actively every week, week on week. And it could be easily an 18-month change program, if you like. In some cases you're simply not gonna make any headway, right? So I really encourage firms to understand the effort that's required to drive the change consistently, making sure they have capacity, making sure they're assigning the right skills to the projects, and they've really also got the appetite and the enthusiasm for it. That goes an awful long way. Yeah, that's definitely, when I look back at those clients who do really, really well in implementing change, they tend to have executives who have the capabilities and who really have the enthusiasm for the work.

Lauren: That makes sense. It's interesting to hear you frame it that way. So from a marketing perspective, we're always mapping the marketing directly to the business strategy, right? Where do we wanna go? And then how are we gonna map that in? But it's really easy to kind of, I think especially for C-suite, right? They can see the vision and it's easy to talk about the vision and wanting it now, but then how do you layer that in so that the change is managed appropriately? And I'd just be curious when you're going into an engagement, because I'm sure there's an umbrella of activity. Are you then timelining that and basically project planning those various initiatives based off of where the firm is at, kind of what does that look like so you can work toward that positive direction of what the outcome is and have clear expectations going into it? That it's not just gonna be sort of snap your fingers and it's all flowers and butterflies.

Eliza: Well, oftentimes that's how strategic planning feels—you go through that process, it's creative, the management and executives love to be involved in it because it opens a door to some great discussion and they're generally pretty excited about where they land in terms of designing the strategy, which is wonderful, but it can wear off unless you gotta keep the momentum going, right? So we do work with the firms in the implementation planning and for some clients, not all, it depends on the firm and their needs, but we will develop what we call a very detailed implementation schedule, which takes, for example, the firm's strategy for the next 12 months and breaks it down into very detailed actions and we assign accountabilities and we set timeframes and then we'll manage that for a 12-month period, in some cases up to two years, to try to ensure that all the project teams within the firm are staying on track and the working groups are getting their stuff done. And we meet on a regular basis to make sure that's happening and provide coaching in the development of solutions along the way. Some firms, however, feel quite equipped to do that themselves, which is great. Others prefer to have more guidance in that area. So it's kind of a mixed bag in terms of how we work with clients to support implementation. 

Lauren: Yep. 

Eliza: Does that answer your question, Lauren? 

Lauren: Yeah, it does. And I mean, I can feel it on this end too because it's not at the company-wide sort of operations level, right? But for us, I mean, if we're, for example, rolling out a new positioning or branding or what have you, it's a culture shift and that does not happen overnight. You can put something up, kind of like if you were to put up a website, but if no one knows about it; it takes time to build that up. If you put out a new brand, people have to know about it for it really to take flight. And that takes adjustments and it doesn't happen over time. And I'm sure it's similar to your work and we're just a little bit of a smaller degree cuz marketing sits underneath business strategy. 

Eliza: You're spot on. It's that communication piece that's so essential. If you've got leaders in the business that are communicating openly, regularly, with the broader team, you're much more likely to be successful in implementing the change. If no one knows about it and it's all happening among a small group of people, then we expect change to happen, it's just kind of unrealistic. 

Lauren: It is. And having the leadership believe in the change and then to have those internal champions to help drive it. So I'd love to hear too, since you've had access to the C-suite at so many different levels, I'm sure of a variety of sizes of firms and what's going on. Is there anything in particular at where we are and in the world right now or what you see ahead that just gets you fired up that feels different or feels like it's a disruption or a trend or what have you, that I think is an exciting potential change for this industry too? 

Eliza: There's nothing that comes to mind in terms of a major disruption. Some of the better firms that I'm working with, they're all strong firms but some tend to be more aggressive in their approach. I think the technology that's available to firms and the marketplace is just evolving so rapidly that there is more of an opportunity for firms to build a tech stack that's going to better shape their business model in the future. I think I'm finding certainly over the years that I'm meeting with executives that are just becoming more and more savvy, more and more capable of doing a better job of deepening their expertise across a range of management capabilities. And that for our industry is somewhat of an evolution.  We've moved from an industry which has been very fragmented in that we've had thousands and thousands of very small players that over the course of time have started to come together and we've seen record numbers of merger and acquisition activity in recent years as firms are folding into each other and we're creating these entities that are growing in scale relative to what we've seen historically. And with that comes deeper levels of capability, deeper pockets, but also deeper expertise and executive teams that are leading their businesses in very different ways to what we've seen in the past. I think the level of management expertise is becoming far more seasoned, and very rich and deep. And some firms really have extraordinary capabilities in this space. And that's an exciting time. I do think there's a lot of wonderful benefits that come from the level of M&A activity we're seeing in the marketplace. And in some cases I do really feel like it's leading to much deeper expertise and greater professionalization within the industry. 

Lauren: Yeah, I agree. I'm seeing that too. And it creates, especially for some of these bigger firms, that deeper expertise or in-house knowledge—something that wasn't always there—so to be able to see that as it could shape and really change that the service offering at large potentially. 

Eliza: Yeah, absolutely. And I think the clients are ultimately the beneficiaries of the fact that these firms are creating scale and have really strong dedicated management, strong advice team structures and are able to deliver a much more advanced client experience for their end clients, perhaps relative to what firms can do otherwise. 

Lauren: I agree. Yeah. Robust experience and just a team of deep knowledge and to be able to have that kind of expertise at your fingertips that's integrated is something I feel like was only for kind of the bigger companies of the day and now it's still bigger in general, but is changing things, so that’s fantastic. Anything else you think would be helpful to share as we look ahead with the work you're doing or the research or conversations? 

Eliza: Well, one of the things that I think I really kind of alluded to before in terms of firms going into performance review season now toward the end of 2022 and dealing with economy-wide impacts like inflation—compensation is going to be a really huge challenge for firms this year and next year. Revenue is likely to be down, expenses as a share of revenue will be up. So I think there's real merit in thinking through your strategy around compensation, but in particular cost-of-living adjustments and the use of incentive compensation to adjust pay perhaps as an alternative to cost-of-living adjustments. I think if firms are going down that path, they need to tread very carefully around making increases that are associated or connected directly with inflation to protect their financials going forward. So to me this is gonna be one of the really red hot issues that firms are going to have to contend with in this current environment. Team members I think across our industry but more broadly, the economy, people are going to be looking to their managers, business owners, and executives to address the pressures they're feeling from an inflationary perspective. And it's upon owners and managers to have a very clear view on how they're going to handle it, to be able to have the right messaging to be able to ensure team members feel comfortable and taken care of during these really difficult times. And to avoid a situation where we create disappointment and departures potentially with talent. So counsel firms in particular to be very careful around the use of cost-of-living adjustments; if you're going to do it this year, use them very carefully, be very clear with team members that cost-of-living adjustments are not going to take place every year. It might be very much a one-off and firms should be really cautious in how much they offer up this year in particular, just to make sure we're controlling fixed costs given all the other pressures on revenue generation this year. 

Lauren: Yeah, that's right.

Eliza: That's probably my key kind of round out 2022. 

Lauren: Yeah, that's really good advice, especially since we finished one political season, at least here in the U.S. but more of that will come and markets up and down and so it's great advice. I appreciate you sharing a little bit of what you're seeing inside of the C-suite and some of those conversations. 

Eliza: Yeah. 

Lauren: I appreciate your time and thank you so much for all the work you do and for supporting so many firms and giving some of those tips, especially as we look ahead for the new year. So thank you again.