Personality Tests as Hiring Tools
By VICTORIA KNIGHT
March 15, 2006
Wall Street Journal
Last year Leon Rousso, a certified financial planner with a practice in Ventura Calif.,
decided it was time to hire a new associate. Instead of relying just on resumes and
interviews, Mr. Rousso also asked promising candidates to take the 16 Personality
Factors, a personality test.
The reason: Mr. Rousso wasn't just looking for good administrative skills and a possible
future successor but also someone with whom he could get along. Last November he
hired Joshua Pierce. Four months on, Mr. Rousso says his new hire "is working out really
well," a success he credits in part to the 16 Personality Factors, or PF16.
"It's an amazing test," Mr. Rousso says.
Mr. Rousso's experience is becoming increasingly common. Financial advisory firms big
and small are using psychometric assessments, personality profiling and intelligence tests
to hire staff, coach employees and create teams. When used well, the tests, which are
relatively inexpensive -- Mr. Rousso says he spent around $300 per candidate, including
consultancy fees -- can cut costs and improve performance. However, advisory firms risk
lawsuits if they fail to do due diligence as there are a plethora of tests available and the
industry is unregulated.
Securities America Inc., a general- securities broker-dealer servicing more than 1,800
independent financial advisers, uses tests to recruit staff for its head office in Omaha,
Neb. They consist of an IQ test, a personality test and the Mayer-Salovey-Caruso
Emotional Intelligence Test. MSCEIT, for short, is designed to measure emotional
intelligence by assessing a person's capacity to identify emotions in others. Aptitude in
these areas is particularly important for customer-service representatives who are tasked
with providing back-office support to financial advisers over the phone.
By using the tests, Securities America hopes to increase the likelihood of hiring top
performers and improve retention rates.
"The cost of turnover can be three to five times an individual's salary, so increasing
retention rates can have a significant effect on the bottom line," says Kathy Shotkoski,
vice president of human resources at Securities America. Securities America is part of
Securities America Financial Corp., a wholly owned subsidiary of Ameriprise Financial
Like Mr. Rousso, she says the assessments are just one tool used to make the hiring
decision; they aren't the sole criteria for decision making.
Tests are also helping financial advisers manage their employees more effectively.
First Harbor Group LLC, a Houston financial advisory firm, uses DiSC, a
behavioral model, as a stress management tool. DiSC helps people understand why
they do what they do, by measuring the interaction of four behavioral factors:
dominance, influence, steadiness and conscientiousness. Using this information,
DiSC can be used to describe a person's general approach, including his or her
motivations, dislikes, strengths and weaknesses, and some of the basic assumptions
the person makes about other people. It can also predict how a person will react to a
specific set of circumstances.
"If you can understand how employees react to stress then you can develop ways to
counteract it," says David Hanson, a founding principal at First Harbor Group. If
left unchecked, "stress can result in lower productivity, increased absenteeism,
tardiness and high employee turnover," Mr. Hanson says.
Meanwhile, H&R Block Inc.'s H&R Block Financial Advisors Inc., which has about
1,000 advisers nationwide, is using Kolbe, a psychometric test, to improve team
performance. About 10% of its advisers have taken the test, which is voluntary.
Unlike IQ tests, which tell you what you can do, and personality tests, which tell you
what you want to do, Kolbe tells you what you will or won't do by measuring natural
instincts, according to Kolbe Corp.'s Web site.
Kolbe defines four basic action modes: "Quick Starts" are innovators, who think on their
feet; "Fact Finders" enjoy gathering information and becoming experts; "Follow Thrus"
are natural organizers who complete tasks in a methodical way; "Implementors" figure
things out by building models.
"Two of our higher producers were constantly clashing with their assistant and they
couldn't figure out why. When their Kolbe results came back it was like, aha!" says Joan
Cohen, executive vice president, H&R Block Financial Advisors.
It turned out the advisers were primarily "Quick Starts" -- big-picture people -- while the
assistant was a "Fact Finder" -- mainly detail-oriented. To reduce conflict the advisers
agreed to start providing their assistant with more detailed information.
Wholesalers who market investment products, such as their firms' annuities and mutual
funds through advisers, are offering Kolbe as a coaching tool to large Wall Street firms.
Frank Maselli, executive vice president and director of the IXIS Advisor Academy, a
training program for financial advisors offered by IXIS Asset Management Advisors
Group, says he has administered about "2,000 Kolbe tests" over the past five years. Mr.
Maselli is a certified Kolbe coach.
Studies show that personality tests are a far more reliable predictor of performance than
interviews and resumes, but they are controversial tools. Using tests not specifically
designed for hiring can lead to lawsuits. For instance, the U.S. Court of Appeals for the
Seventh Circuit, in Chicago recently ruled a personality test used to fill management
positions at Rent-A-Center Inc., a national retail chain, qualifies as a medical exam. The
Americans with Disabilities Act prohibits requiring medical examinations prior to
making a job offer, and according to the appeals court this includes positions filled
internally. In addition, the court ruled that the test, the Minnesota Multiphasic Personality
Inventory, was inappropriate for this purpose as it is used to diagnose mental illness.
(Psychological screening tends to be limited to professions where mental stability is
required for public safety, such as in the police force.)
Employers also need to carefully examine state laws. While no state explicitly prohibits
the use of personality tests, integrity and honesty tests are banned in Massachusetts and
Rhode Island so employers need to check for unlawful components.
Moreover, tests shouldn't have a "disparate impact" on a protected classes of people, such
as certain racial or ethnic groups. The Equal Employment Opportunity Commission's
general rule is that protected classes must pass an assessment at a rate that is at least four-fifths
the pass rate of unprotected classes. For example, if eight out of 10 Caucasians pass
a test compared with just five out of 10 African-Americans, then employers can be sued
under the Civil Rights Act of 1964.
"Employers need to do their homework before using tests," says Joseph Schmitt, an
attorney in the labor and employment team at Halleland Lewis Nilan & Johnson PA, a
law firm based in Minneapolis.
Although Mr. Schmitt knows of no major cases against advisory firms, he advises
employers to vet vendors. Companies should find out, for example, how long the profile
has been used and its history. Does the test, for example, comply with U.S. civil-rights
and equal-opportunity legislation? Are there multiple objective studies showing it to be
an accurate predictor of future job performance? Has the vendor ever been the subject of
a lawsuit? Mr. Schmitt also suggests partnering with an attorney to check compliance
with labor laws, and using an experienced professional, such as an industrial-organizational
psychologist, to interpret test results.
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