In the first part of the post, I answered what, exactly, an ‘employee’ is; I’ll now turn to the implications for the future of the planning model.
Ultimately, the ongoing trend toward growing firms with a large cadre of employee advisors seems to be a tremendous positive for the financial planning profession.
First and foremost, the evolution of employee advisors at multiple tiers over the past decade essentially represents the creation of an advisor career track in the profession. While such a track is not always applied consistently at every firm, it is seen more and more commonly as firms grow and begin to standardize their structures. While many have lamented the lack of a career track for financial planners — and to be fair, the number of firms that have such a fully developed career track is still fairly small relative to the total size of the industry — the reality nonetheless is that a professional career track really is emerging.
In turn, the emergence of a career track gives at least some hope for financial planning to finally be able to better attract and retain talent, in a world where there are simply far too few younger advisors coming in to replace those who are retiring out (as Cerulli estimates the headcount for advisors will drop by nearly 10% in the next 5 years). In fact, the InvestmentNews study itself notes very specifically that larger ensemble firms are already beginning to use their fully fleshed-out career track as a tool to attract and retain younger advisor talent.
On the other hand, given how far behind the industry already is on attracting young talent and replenishing the pipeline, the question arises of whether this emergence of career tracks will be a way to shepherd young talent into the industry, or a squeeze that emerges for a shortage of it. Notably, the InvestmentNews study finds that median compensation for service advisors actually rose 8% in the past two years, but compensation for lead advisors is up almost 12%, and overall there is still a very significant jump from the average service advisor ($81,000 after 10 years) to the lead advisor ($134,000 after 15 years), suggesting that the real squeeze is for talented advisors who can be fully responsible and unsupervised in managing client relationships.
The challenge is that being capable of such responsibilities takes a significant amount of time to train and develop, and is not simply something to be resolved with an influx of new financial planners today. As a result, the danger is actually that firms behind on their hiring and training today will find it increasingly expensive to hire outside lead advisors to come in and hit the ground running, implying that the pressure is on now to begin building their internal pipelines (if they can).
For those who do have a business development skillset, the outlook is even better; the median time for partner-track advisors to have the opportunity for partnership is a remarkably short six years (by contrast, it's typically 8-12 years in the legal and accounting professions), which speaks again to the dearth of available talent and the drive of firms to attract and retain capable advisors when they're found.
The bottom line, though, is simply this: while the roots of financial planning may be in the insurance and investment sales industries, where you "ate what you killed" and every advisor was responsible for business development to survive, the growing size and scale of firms is beginning to separate the skillsets of those who grow the business from those who retain and service it. While it may be true that the greatest rewards will continue to accrue for those who can attract clients and develop business, this separation of duties in an otherwise lucrative industry means a growing number of opportunities for advisors that have nothing to do with sales and new clients and everything to do with servicing and retaining existing clients, and especially for those who can handle the responsibility of managing those relationships.
On the other hand, the emergence of such career tracks are far more difficult to flesh out in smaller firms, while the largest are using their career tracks as a tool to attract and retain talent, which means — similar to how marketing scales at larger firms, such that the big firms grow bigger while the small are "stuck" small - there is an emerging risk (or opportunity, depending on your perspective) that the larger firms will win the bulk of the industry's future talent and that small firms may be "stuck" small and struggling to find the talent they need to grow.