Hiring young people boosts the bottom line for advisory firms, according to research released Friday by TD Ameritrade Institutional.
Firms employing a millennial advisor saw their assets increase by an average of 20 percent annually between 2012 and 2014, while those that didn’t employ a younger advisor saw increases of only 11 percent, TD Ameritrade says in its report, “The Rise of the NextGen Adviser.”
Firms with millennials also tend to be more successful in attracting new clients, reporting 10 percent growth in new client AUM in 2014, while those firms without millennials reported only 5 percent growth.
In addition, the study found that two-thirds of larger firms, those generating at least $5 million in annual revenue, had at least one millennial advisor. Firms with at least one such advisor average about 20 percent higher income per owner than those that have none. Part of this is due to the fact that partners and principals can delegate more work to staffers, freeing their own time to cultivate new business and serve top clients.
Hiring younger advisors is also the right thing to do for the financial industry because established advisors retire and the industry faces a talent shortage, TD Ameritrade says.
“Hiring young advisors today and helping them grow as professionals can help RIA firms in the years to come,” says Kate Healy, TD Ameritrade Institutional’s managing director of marketing. “We believe that developing young talent can help RIAs generate and sustain higher long-term growth as well as let them build greater enterprise value for their firms.”
Just 21 percent of financial advisors are age 40 and under, whereas 45 percent are over the age of 50, which means retiring baby boomers will be leaving the industry at a much faster pace than they can be replaced.
This year, 22 percent of RIAs anticipate hiring a millennial advisor, while only 11 percent of respondents reported doing so in 2015.
“We as an industry should be doing everything we can right now to develop new talent and ensure RIAs remain well positioned to serve investors for decades to come,” says Healy. “But fostering the next generation is more than just a demographic challenge for the industry. It should be part of every RIA’s growth strategy.”
To expand the pipeline of millennials into the financial services professions, the TD Ameritrade Institutional Financial Planning Scholarship & Grant Program is seeking applicants. The program offers 12 scholarships of $5,000 each to financial planning undergraduates, and two of the scholarships are dedicated to students from minority demographic groups. The company also provides financial planning grants to universities, including a $50,000 grant for an already established program and a $25,000 grant for an emerging program.