Most of us have recognized several important issues in our industry: The average advisor age is over 50, the advisor population continues to decline and many of the traditional training programs are not producing new advisors at a pace similar to the past.
Consequently, we are now faced with the impact this has had on our business. Advisors who are contemplating their own retirement need to plan for a successorone who has many working years left and can earn investors trust while also forming relationships with younger, emerging investors.
Where will these advisors come from? Recruiting from the industrys existing salesforce is the obvious option, yet it is a competitive market. Discovery Database reports advisor movement at levels below 5%, according to its BD Rep Movement Study. Meanwhile, young advisors are in short supply. Only 10% of advisors are under the age of 35, according to Cerulli research.
As the industry seeks solutions, some bank program managers affiliated with us here at LPL are creating the next generation of advisors through recruitment efforts aimed at advisors just getting started in the business.
Matt Griffin, a senior advisor and program manager at Family Trust Federal Credit Union in Rock Hill, S.C., made a cold call to a local universitys business school to look for interns. We reached out to the dean of business, explained what we were looking to do and asked for their all-stars. They were very willing to give us that information, said Griffin.
John Olerio, senior vice president and sales manager of Webster Bank in Waterbury, Conn., said his bank takes a similar approach, recruiting from college career fairs and arranging for campus visits and interviews. We find that the students we hire are extremely talented, energetic and dedicated to making real contributions to our team, he said.
Some universities are expanding their course options to include financial planning and advising; however, the field is still limited. Without an internship or the ability to partner with a more tenured advisor, the day to day practical experience is missing, said Griffin.
Even with the available career opportunities in our business, getting a college student excited about them takes some selling.
Its partly a perception problem, and the industry needs to work to make sure it doesnt get cemented as reality in their minds. It was important we undermined the Wolf of Wall Street view, said Griffin. Millennials may not have the most positive view on our industry and assume its a commission-only job, which is not what theyre looking for right out of college.
COMPENSATING FOR A MARATHON
In an industry that is transferring to more fee-based revenues, its a daunting idea for new advisors to begin their careers without a secured paycheck. Because of that, banks might consider an extended salary period, one that would align with the programs philosophy for the long term.
Matt Snively, senior vice president and program manager at Elements Financial Federal Credit Union in Indianapolis, agreed that compensation not tied directly to production is important for a time. This allows us to grow the business more thoughtfully, said Snively.
So how long of a salary period is appropriate? Griffin suggests as long as necessary. he says they are committed to new advisors so they can be on salary as long as theyre developing and performing. They know theres an upside to being full commission, he says, so the bank allows them to set a personal timeframe goal for that. We all want to build this business the right way. This is a marathon.
BENEFIT TO THE PROGRAM
With the added salary, benefits and training expense of adding junior advisors to your program, it is important to consider how you will measure the pay back. If you only put value on the actual production of the junior advisor, that may not tell the whole story.
Bringing on new advisors will drive a more efficient practice along with gains in employee satisfaction and retention. Griffin delegated some of the client relationships and day-to-day tasks to the junior advisor. It allowed me to do more business development events on behalf of the program. Our overall response time to clients improved dramatically as well. I saw my business pick up by 15% pretty quickly.
Webster Bank attributes its overall growth to the junior broker model it began three years ago, which places junior advisors on a senior financial consultants team. Of the banks 64 reps, 38 are senior consultants and 26 are junior associates. We are simultaneously building future bench strength and providing a career path, said Olerio.
And the program has driven results. Our senior consultants have had, on average, 15% growth in the first year they take on a junior advisor, said Olerio.
Another payoff is the one you are making to your client. Your investment program can be more effective in serving a much broader segment for a longer period of time.
BRIDGING THE AGE GAP
With young advisors come gaps in experience, trust and relatability that have to be built with a more mature investor. The senior-junior advisor pairing is an ideal way to overcome those issues.
Young advisors can also be an advantage. Knowing that advisor-investor relationships tend to build among a similar age group, hiring younger advisors fills a niche for your institutions younger, emerging investors. These investors are looking for an advisor they can relate to and partner with for the next 25 or more years.
Younger advisors also provide assurance to pre-retirees and retirees that someone will be around for the long-term to continue to manage their investments. This type of investor may appreciate the experience of the senior advisor, but clients have a natural curiosity about how much longer the advisor will be in the business, said Snively. Theres assurance that the investors needs will be met now and in the future.
The industrys solution to this issue will take time, but we may find that grassroots efforts like these can have a significant impact and begin to transform how we introduce more Americans to financial advice now and into the future.
Frank Smith is vice president of business development, institution services at LPL Financial.