They were companies that everybody knew: American Motors, Brown Shoe, Studebaker, Collins Radio, Zenith Electronics, National Sugar Refining and others. They were the envy of the corporate world: successful, profitable and firmly established. They were the Fortune 500 firms. What do the industrial giants listed above all have in common?
None of them are in business today.
What happened? How can 88% of the nation’s leading companies practically disappear from the business landscape?
They went away because they failed to innovate. They failed to listen to the up-and-coming voices. They failed to future-proof.
Why is this relevant to the financial advising industry? Seventy-two percent of practitioners in our industry are age 40 or older, according to the most recent figures from the CFP Board. Nearly forty-eight percent of us are 50 or older. Meanwhile, millennials are set to acquire around $30 trillion in assets from their baby boomer parents, who currently control about 80% of the nation’s wealth, according to AARP statistics.
How many of those 40-, 50- and 60-year-old advisors are going to be around to counsel the clients who are putting their new wealth toward expanding businesses, educating children, pursuing philanthropic goals, planning for retirement and developing strategies for transferring their assets to future generations?
Clearly, those of us who want to position our firms for lasting success must recruit, mentor and properly compensate the millennial advisors who will power the future of our industry.
So how do we attract and retain the advisors who will rise to become our eventual leaders?
Hartford Funds in 2016 convened a roundtable of younger advisors to learn their opinions on how firms can adapt and remain relevant.
QuoteTo remain competitive with entry-level positions in other financial careers, advisory firms may need to build in a significant salary component for young advisors while providing a clearly defined incentive plan that encourages appropriate career progression.
Not surprisingly, the topics of mentoring and providing clearly defined career paths received frequent mention by participants. For young advisors, a major challenge is one faced by everyone who has ever entered the business at a young age: establishing credibility with clients old enough to be their parents or even their grandparents.
Many firms are addressing this by pairing younger advisors with more seasoned practitioners. This partnership can provide younger advisors the opportunity to get face time with clients and also absorb the older advisor’s methods, business philosophy and perspective. In turn, the senior advisor gains access to the younger advisor’s technological savvy — typically a strong suit for younger, digital-native millennials just entering the profession.
A 2013 Ernst & Young report notes our industry’s longstanding weakness in providing clear-cut job descriptions, especially for advisors just starting out. In response, some firms have started to design special residency programs to provide aspiring advisors a logical step between internships — which, at many firms, can embrace a range of duties from getting coffee to running analytic reports — and full-charge responsibility for client accounts and business development. The hands-on experience typically turns these young advisors into highly sought-after candidates for positions with greater responsibility.
Next-generation advisors clearly indicate the value they place on transparent compensation structures. At the same time, they tend to perceive a stigma associated with sales, and generally prefer to avoid the type of transaction-driven business many older advisors cut their teeth on.
For this reason, the fee-based model enjoys broad acceptance among younger advisors. This model also accords well with their avowed focus on client interests and outcomes. Accordingly, firms that wish to successfully attract and retain top-performing next-gen advisors may need to consider methods that make effective use of fee-based compensation structures.
To remain competitive with entry-level positions in other financial careers, advisory firms may also need to build in a significant salary component for young advisors while providing a clearly defined incentive plan that encourages appropriate career progression.
QuoteFortune 500 companies can disappear because they fail to innovate. Don't take a page from their book. Instead, future-proof your business now.
Financial Planning contributor Michael Kitces recently suggested that our industry may be reaching a critical point in terms of the amount of advisory talent available in comparison with the expanding client population.
He also makes some important points about the need for advisory firms to differentiate themselves in the face of what he terms the “rising commoditization” of financial advisory services. Firms must also take into account the growing importance of robo-advising and other technological innovations that will continue to alter the ways in which we interact with clients.
Given such constraints and the ongoing evolution of our business models, doesn’t it make sense to invest now in those who are best-positioned to take us into whatever brave new world we face? Millennial advisors have grown up in a world of accelerating technological change. But they also bring to the table a solid emphasis on relationships, a yen for wearing different hats as needed, a strong team mentality, and a propensity to embrace a well-defined mission.
And let’s not forget: They aren’t only the next generation of advisors, they’re also the next generation of investors. If we want to keep our client base in expansion mode, why wouldn’t we want to have team members who already speak the dialect?
Younger advisors’ interests, values, priorities and loyalties will inevitably become the drivers that shape the wealth management landscape of the future. Now is the time to make them an integral part of our firms.
Now is the time to future-proof our industry.