| Financial advisors in their 50s and 60s are hitting retirement age at a time when theirage-contemporary clients need strategic advice more than ever. Meanwhile, online financial planning and blogosphere advice is drawing off younger investors into the do-it-yourself realm. This creates a double-whammy generation gap.
Older clients can be nervous about being advised by someone possibly two generations younger – and, on the obverse, young clients may be reluctant to establish a working relationship with an advisor who may exit the stage in a few years. And while technology breakthroughs at first broke down barriers to entry for solo practitioners, it soon morphed into a commoditization of investment management accessible to anyone.
Numbers of active financial advisors have declined over the past decade, and by 2022, the industry could face a shortfall of more than 200,000 advisors, according to consulting firm Moss Adams. Solo practitioners are most at risk.
Bigger firms have also downtrended. At the larger wirehouses, training programs were curtailed during the financial crises of 2001 and 2008, increasing the gap. But the marquee names – Merrill Lynch, Wells Fargo and UBS – have held their own.
Companies with many advisors have an advantage. Commonwealth Financial Network, with offices in Boston and San Diego, has 1,500 independent financial advisors, to whom it provides services such as transition and succession plans, and drafting buy/sell agreements.
Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network. She says that while online options have helped to commoditize investment management, wealth management doesn’t lend itself to such treatment due to the more personal issues of whom to leave wealth to. “Those are pretty internal questions. I don’t see technology ready for that kind of prime time.”
The drive for incoming recruits to start bringing in business right away has become an outmoded strategy, she says. It has morphed into a more gradual model in which a new recruit earns a moderate salary while learning the rainmaking and compliance ropes over a three-year period before plunging fully into finding their own clients.
Commonwealth Financial’s Junior-Senior Intensive Mentoring program seeks to help junior members develop the relationship skills necessary to a good client bond. They learn that it’s all right to tell a client that they’ll have to check on a particular detail before giving an answer.
But many clients are asking for more. Cerulli Assoc., a Boston-based global asset management and distribution analytics firm, notes that registered independent advisors (RIAs) who also maintained an affiliation with an independent broker-dealer (IBD) are on the upswing. “The Cerulli Report: Advisor Metrics 2013: Understanding and Addressing a More Sophisticated Population,” also notes the migration to fee-based relationships rather than transaction-based relationships, but adds that personal relationships remain a critical component of client-advisor dynamics.
Larger firms tend to command more client assets, particularly clients with $10 million or more in investable assets. Those who price on asset-based fees can concentrate on client goals rather than transactions, the Cerulli research notes. That being said, there’s an increasing move toward independent advisors – those who are not restricted to sell a specified product list.
All this is flowing into the financial-advisor system in the wake of negative stereotypes such as Bernie Madoff and the movie “The Wolf of Wall Street. Youngwirth says she thinks those stereotypes will take a long time for the financial-advisor industry to live down.
“The way industry has responded is with more compliance. It’s the good guys who were clean in the first place who have to take up the slack on compliance,” she says.
Nonetheless, financial planners will be much needed by those in all walks of life. The survival of the industry will depend on a wider swath of prospective clients realizing that they can be helped by a personal advisor, and on more young people joining the profession, realizing that they can provide that genuine help.
Email: coneill@thewarrengroup.com
