Advisory Industry Faces Talent Shortage
As an industry, the financial advisory business is relatively young. But its practitioners aren't. Cerulli Associates recently threw out some numbers to chew on-the average age of financial advisors is a shade under 49 years, and about 14% of those in its workforce are north of 60 years. More important, less than 25% of all advisors are age 40 and younger. And one final number to consider: Just 5.6% of advisors are age 30 or younger.
The industry needs new blood to replenish itself at a time when aging baby boomer clients will be putting greater demands on their advisors (many of whom themselves will be shifting into retirement mode). But an influx of reinforcements doesn't seem to be happening.
"This is essentially a stagnating industry, and at some point it could be a real problem," says Bing Waldert, a director at Cerulli, a Boston-based consultancy. Cerulli found there were roughly 334,000 advisors across all channels in 2009, down more than 1% from 2004.
According to a Cerulli report, "Hire, Train or Else," one of the challenges of attracting-and keeping-new recruits is the increasing sophistication of the advisory industry as it shifts from a commission-based transaction model to more complex financial planning with a fee-based model. Although it was never easy to start a career the old-fashioned, cold-calling way with a telephone and the white pages, Cerulli posits that the industry's increasing sophistication makes it even harder for newbies to hang their shingle.
"Investors don't just want to be pitched stocks," Waldert says. "They want to understand the recommendations within the framework of their overall goals. It's tougher for someone in their 20s to come in and earn a person's trust because clients' expectations for advisors are much higher."
Cerulli says there are no silver bullet cures for the talent shortage problem, but it does offer some possible solutions. One entails bringing novice advisors into existing advisory teams, which can provide a supportive environment for new hires. But rather than just dumping all the mundane work in their laps, senior advisors should set them up with a sense of the duties that will eventually be transferred to the junior advisors. Often, these new advisors fill a role within a team, as an investment or financial planning specialist, for instance.
Another way to successfully integrate new advisors into the fold is to let them cultivate clients with fewer assets, so that hopefully these pairings will grow together as the client attains more wealth later. This enables senior advisors to focus on bigger clients.
At least initially, says Cerulli, junior advisors should act as a support person rather than a business development resource because the sales-oriented aspects of the profession turn off many young professionals. Those new advisors with a go-getter sales mentality are more likely to want to start their new practice from scratch.
The Cerulli report found the bank channel has the largest numbers of under-40 and under-30 advisors in the industry, at least in percentage terms. And on the whole, it sports the youngest average age per advisor at 45.3 years. Two other channels-insurance advisors and dually registered advisors-shared the highest average age of 49.6 years.
The business development hurdle isn't as high in the bank channel, Waldert says, because advisors can work with tellers to spot potentially profitable customers and build business through referrals. "They can forge relationships with bank customers, which is an easier way to start a business from scratch," he says.