By David Partain
The financial advisory industry is on the brink of a major disruption: as advisors age out of the industry, the next generation isn’t entering the field fast enough to fill the gap.
The average age of a financial advisor today is 51, with 38% of advisors expecting to retire in the next 10 years. That could result in a shortfall of up to 200,000 advisors by 2022, according to a recent study by Bloomberg and Greenwich Associates.
An aging industry has clear implications for advisors looking to retire or sell their business, not to mention investors looking for human-powered advice.
Advisor firms will face an increasingly acute shortfall of younger talent—the very people who may decide a firm’s long-term ability to survive. We often find advisors skeptical of bringing on millennial talent. However, the benefits of a multi-generational practice go far beyond just succession planning. Younger advisors may play an important role in understanding the digital habits of their peers and helping their firms navigate an ever-changing digital landscape. Furthermore, with an anticipated wealth transfer from baby boomers to their heirs that could reach $68 trillion over the next 25 years, it’s more important than ever to cultivate talent that can better speak the language of younger investors while developing long-lasting relationships.
How can current advisors better prepare to develop the next generation to ensure business continuity?
First, some good news. The financial advisory business is an attractive career choice at any age. In our recently conducted Advisor Wellness Study of over 600 advisors, nearly 80% indicated they were overwhelmingly satisfied with their career choice. Furthermore, they also identified specific factors that make the industry appealing for younger applicants. The aspects that advisors identified as most valuable about their career—helping people (60%) and independence/flexibility (21%)—are closely aligned with millennials’ priorities. In the pursuit of younger talent, these could serve as key selling points.
Keeping these and other millennial priorities in mind, there are several practical tips that firms can implement to better attract and retain younger talent, as identified in our Wellness Survey. These include:
- Promote work-life balance: Advisors in the first 10 years of their careers reported stress that was 20% higher than those in practice for 20 years or more. While employers can help manage part of that stress on the job by addressing time management issues, outsourcing non-essential tasks and providing clear direction and support, outside of work activities are also highly valuable. Whenever possible, ensure employees have adequate opportunities to pursue leisure activities and de-stress, which will help maintain their commitment over the long-term.
- Identify development milestones: Millennials are generally well-educated and may leave college with financial planning education and a Certified Financial Planner designation. As such, they may feel ready to take on their own client base and higher-level tasks right away, which can make the initial learning process a challenge. To keep younger talent engaged, build out a development plan for them with specific milestones that will help set expectations and give them a framework to move forward in their careers.
- Emphasize social responsibility: Millennials are typically socially conscious in their personal life—whether that's reducing their carbon footprint or pursuing ESG-friendly investments—and they want to do good in their professional life as well. It’s no surprise that advisors’ favorite part of their career is helping people, so be sure to highlight in your communication how their work is making a difference and delivering outcomes that will help clients build a better life.
- Encourage flexibility: As noted above, the financial advice business naturally comes with a certain degree of independence and flexibility that is attractive to many advisors. However, to appeal particularly to younger talent, consider taking this a step further with flexible working hours or opportunities for remote work. While this arrangement will depend on the advisor’s role and the technology at your firm, if it's a fit, this can build mutual respect and loyalty.
Whether you are looking to grow your business or considering a future succession plan, adding younger talent to your team is essential. Don't discount what your younger employees can add to your business—from identifying new technologies to connecting with younger or more diverse clients. With the right mindset when recruiting and managing these professionals, you may find they are the key to keeping your practice relevant in an ever-changing industry.
David Partain is the head of marketing at FlexShares ETFs