Last November, Philip Palaveev of the Ensemble Practice and Stacey McKinnon of Morton Wealth authored a cover story for Financial Advisor contending that young advisors dissatisfied with their positions in their firms would simply leave and launch their own entities. Shortly thereafter, other consultants to the profession contacted me and said they were engaged in multiple conversations with young advisors at big firms discussing going independent.
In this month’s cover story, Palaveev tackles another related problem coursing its way through the business. Based on a survey the Ensemble Practice conducted with BlackRock, the advisory industry’s profitability has surged in the last decade to levels that appear unsustainable—at the same time employee turnover is rising.
Anytime industry profits reach the average of 38.4% that the survey found, it’s inevitable that new competitors will emerge. But in my own experience as someone who has observed a range of industries with amazing profits—from drugstores to food to newspapers—I know nothing lasts forever.
Palaveev predicts that the recruiting wars that have raged for years in the wirehouses and independent brokerage firms are about to come to independent advisory shops as well. They already are starting, as this year the business has, in all likelihood, seen more firms suing one another than in any prior year.
Thanks to this surge in profits and a dramatic rise in wealth across America, first-class airline tickets are now affordable for many advisors and their clients. A few decades ago, most clients and advisors would have scoffed at this idea as profligate.
An article in this issue on page 27 by CEG Worldwide’s John Bowen Jr. addresses the expanding market of the ultra-affluent. Winning these individuals as clients isn’t going to be easy, since their problems tend to be more complicated. Their issues also are multi-generational, which makes building relationships with their offspring all the more important if one hopes to retain their assets.
Not many advisors are doing that, according to Keven DuComb of Altfest Personal Wealth Management. Like Bowen, DuComb offers some ideas of his own about bridging the gap with different generations of clients.
If advisory firms hope to retain their record levels of profit, they will face two options. First, they can attempt to dramatically raise their intergenerational client retention rates. Second, they can create strategies to win over the next, younger generation of wealth creators. It’s a safe bet that many of the new firms we see announcing their launches will do exactly that in the next decade.
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