Financial advisors in their 50s and 60s are hitting retirement age at a time when their age-contemporary clients need strategic advice more than ever. Meanwhile, online financial planning and blogosphere advice is drawing off younger investors into the do-it-yourself realm. This creates a double-whammy generation gap.
Older clients can be nervous about being advised by someone possibly two generations younger – and, on the obverse, young clients may be reluctant to establish a working relationship with an advisor who may exit the stage in a few years. And while technology breakthroughs at first broke down barriers to entry for solo practitioners, it soon morphed into a commoditization of investment management accessible to everyone.
Numbers of active financial advisors have declined over the past decade, and by 2022, the industry could face a shortfall of more than 200,000 advisors, according to consulting firm Moss Adams. Solo practitioners are most at risk.
Bigger firms have also downtrended. At the larger wirehouses, training programs were curtailed during the financial crises of 2001 and 2008, increasing the gap, though the marquee names – Merrill Lynch, Wells Fargo and UBS – have held their own.
Companies with many advisors have an advantage, because they can provide services such as transition and succession plans, and drafting buy/sell agreements. On the other end of the spectrum are online options, which have helped to commoditize investment management. However, larger accounts aren’t a good candidate for online wealth management, due to the more personal issues of whom to leave wealth will be left to.
Creating A Plan
Kevin Leahy is CEO of Connecticut Wealth Management LLC, a fee-based, registered investment advisor (RIA) firm in Farmington, with 13 staffers, including himself. He says the industry as a whole hasn’t done a good job of educating potential recruits, but “there are exceptions, and our firm is one.”
The assumption of laypeople that the industry is a rainmakers-only-need-apply enterprise has its basis in the commission-driven investment model. “If you can’t bring in business, [big firms] see you as an expense,” he noted. But his firm has several staffers in their 20s and 30s. Leahy said he’s seeking to hire a few more, and intends to give them ample time to learn the details of the profession and develop the people-skills needed to cultivate existing clients and then, develop their own. Ultimately, he said, the most important thing planners do is to create a plan, not invest money, in order to guide clients through different life stages.
Leahy doesn’t see online resources as a long-range threat to the financial planning industry; the do-it-yourself approach still requires time and effort, and most clients are too busy with work and family to invest the effort, he says.
Changing The Structure Of The Industry
Connecticut Wealth Management’s young advisors have established a networking group of related professionals (planners, attorneys, and CPAs) in their 20s and early 30s to share ideas and encouragement. The company takes an active role, speaking to audiences at local colleges, community colleges, universities and high schools to educate them about financial planning topics and the profession.
Meanwhile, the structure of the financial planning industry is changing as sophistication among the client base widens. Cerulli Associates’ research notes that RIAs who also maintained an affiliation with an independent broker-dealer are on the upswing. “The Cerulli Report: Advisor Metrics 2013: Understanding and Addressing a More Sophisticated Population,” also noted the migration to fee-based relationships rather than transaction-based relationships, but adds that personal relationships remain a critical component of client-advisor dynamics.
Larger firms tend to command more client assets, particularly clients with $10 million or more in investable assets. Those who price on asset-based fees can concentrate on client goals rather than transactions, the Cerulli research noted. That being said, there’s an increasing move toward independent advisors who adhere to the RIA model – those who are not restricted to sell a specific product list.
The survival of the industry will depend on a wider swath of new, prospective clients realizing the difference between commission-based models and fee-based models, and that they can be helped by a personal advisor – and at the other end, by more young people joining the profession, realizing that they can provide that genuine help.
Email: coneill@thewarrengroup.com
