He said advisors become less productive if they simply try to hold on in the business rather than grow their business. Just one more reason broker-dealers should be getting the advisors to take on the next level of talent. He pointed out another risk: “A drop in advisor count results in loss of economies of scale.”
By not taking on the next generation of advisors, the next generation of clients will be lost. “They will go to Schwab, TD Ameritrade, etc.,” warned Endersbe.
A Look At The Future
Philip Palaveev, CEO of the Ensemble Practice LLC, told attendees, “Size matters. With more people, there are more resources, and organizations are more profitable.” He said the industry is running out of large firms.
He drew a parallel to the United States’ 100,000 accounting firms and half a million CPAs, explaining that it is a fairly mature industry. That is where that financial advice business is going, he said. It will become a zero-sum industry. "If you win an account, someone loses an account,” said Palaveev.
Speaking about the larger number of solo practitioners in the industry, he said, “What is really important with bringing on successors is leverage. As an industry, we have an army of doctors without nurses. They do everything on their own. That is not particularly productive.”
Palaveev also pointed out that most broker-dealers are going to have a problem. He pointed out that LPL, Raymond James and Commonwealth have solid economies of scale, but at other firms, the scale is lacking.
If advisors can learn from these lessons, growing in size, they will grow faster. One issue he sees holding back this generation of older advisors is that they have an "eat what you kill mentality." Because they want the next generation to experience the same thing, they are not as successful at growing the next generation of advisors.
A Positive Outlook
In a private conversation, Dale Brown, the president and CEO of the Financial Services Institute, said, “Clearly, the industry has a challenge; they need to figure it out. I have faith in the innovation that exists. Succession is a challenge for the future of our business. I am not sure there will be a big macro solution or it will be the little solutions. I am very confident the industry will grow future advisors.”
Mike Byrnes is a national speaker and owner of Byrnes Consulting, LLC. His firm provides consulting services to help advisors become even more successful. Need help with business planning, marketing strategy, business development, client service and management effectiveness? Read more at ByrnesConsulting.com and follow @ByrnesConsultin.