“These partners nearing retirement, while thinking they are ready to go, hate to see change and certainly don’t want to see their practice morph while they’re still in the office,” she says.
Younger advisors don’t want to be “doing something as a means to an end,” she says. “They want fulfillment, challenge, and growth, and those are traits that many firms just aren’t cultivating for this extremely capable, high-achieving demographic of professionals.”
Alan Moore, the co-founder of the XY Planning Network, says younger advisors are bound to get shiftless doing all the work in a firm with no career path, something he experienced when he entered the industry. “Coming into a firm where you start doing a lot of work, you take over the operations of the firm, but you’re still not an owner,” he says. “You’re basically running the practice. The older advisor does have a foot out the door; they’re out playing golf because they can. They’re working 10 to 20 hours a week.” And he argues: Why would the owner even want to sell? The practice is likely a highly paying annuity for those founders and can keep them going into their 80s while somebody younger does the heavy lifting.
If the younger advisor helps the older one double the size of the firm with hard work, the millennial has doubled the amount he’s going to have to pay to buy out the veteran, Moore says. And what you’re likely buying for that extra amount is a lot of older clients.
Susan John, a partner at F.L. Putnam and the former chair of the National Association of Personal Financial Advisors, says that younger advisors coming out of dedicated planning programs aren’t prepared to do service work, much less selling work. That’s a problem with a client-facing business.
Have You Ever Scooped Ice Cream?
“Kids don’t work in high school anymore. They don’t work during the summer," she says. "They have other activities that they’re doing. So they don’t develop those service skills that you get even if you’re just scooping ice cream.” Her problems finding talent hurt her succession plan, she says, and she ended up selling her old firm to F.L. Putnam.
But Moore suggests there’s a flip side to the argument about what’s lacking: “I don’t think a lot of financial planning firms have learned what it means to be a good employer,” he says. “I have very rarely if ever seen content at a conference about how to be a good manager. How to be a good leader. I think honestly most financial planning firms are just terrible places to actually work.”
Matt Cooper, president at Beacon Pointe Advisors, a Newport Beach, Calif., giant with $11.5 billion in AUM, says size matters here. “Most RIAs below $5 billion are not growing net of market,” he says. “Young people particularly in our industry coming out of the CFP programs, they want a career path. They don’t want a job. They want a vision as to what their career is going to look like, five, 10, 15 years down the road. And if you’re a firm that’s not growing, particularly sub-$1 billion firms where most of the RIA firms exist, you’re not able to give young people a real understanding of what their career might look like.” You can’t invest in people or the tech they are going to use. “The majority of RIAs are not enterprise businesses, they are lifestyle shops.”
He says it’s not a generation gap. It’s a thinking gap: Both generations, he says, are treating practices as lifestyles. “Let’s not mistake activity for results,” he says. “Are you thinking about scaling a business as an enterprise as opposed to running it as lean and mean as possible so you can put as much money in your pocket and harvest it for your lifestyle? You see a lot of smaller businesses running at 50% margins. That’s too high if you’re trying to invest and scale up. Those margins should be close to 25% if you’re really investing in the business to grow it.”