“What starts here changes the world.”
In his commencement speech at the University of Texas at Austin, Admiral William McRaven, ninth commander of U.S. Special Operations Command, opened his remarks by quoting the slogan of his alma mater.
McRaven's mission that day was to inspire the 8,000 graduates to impact the lives of others. He said, “If every one of you changed the lives of just 10 people, and each one of those folks changed the lives of another 10 people—just 10—then in five generations, 125 years, the class of 2014 will have changed the lives of 800 million people.”
His speech, reprinted in The Wall Street Journal, got me thinking about how each of us in financial services hopes to leave this industry better than we found it. Based on early returns, it appears that we are losing ground. Both potential clients and prospective employees have come to view the business with suspicion and disdain, and we have not done enough to combat this negative perception. I see at least three recent developments that are putting the future of our business at risk.
First, consider the way today's consumers manage their financial lives. While many factors led to the Great Recession of 2008, financial illiteracy ranks high among them. People purchased things they could not afford, borrowed money without understanding the implications and chased financial returns that were not reasonable. Of all the things that Dodd-Frank and other reforms out of Washington addressed, they failed to tackle measures to help consumers help themselves. Uninformed consumers made it easy for unscrupulous pitchmen, bankers, brokers and advisors to exploit them.
Hand in hand with financial illiteracy, consumer distrust is casting a pall on the profession. We have created an environment in which retail investors feel insecure. They don't know who will keep their assets safe or who might be looking to game the system. This disaffection, especially within the next generation, is causing many individuals to attempt to manage their money without a guide, relying on technology and data obtained from other sources. It is easy to dismiss this threat, but just ask your clients’ children about their view of investing and investment professionals.
If consumers could manage all their financial goals just fine with a DIY model, no harm would be done. But if you accept the first problem I noted—rampant financial illiteracy—then it is clear that the risk is great indeed.
The third problematic element comes from within the industry itself. We need new talent in order to thrive, yet the financial services business has become unattractive as a career choice. In my opinion, the first two elements contribute to this third problem: Young people have not learned enough about personal economics to see finance as a legitimate career option, and those who might consider financial services feel cynicism and scorn for the industry.
Consider the Facts
In my opinion, there is a direct correlation between financial literacy, confidence in the financial industry and the desire of young people to become part of the business.
The financial services business ranks as the least trusted industry in the world—and has held this unfortunate position since 2008. According to the 2014 Edelman Trust Barometer, financial services companies are less trusted than oil, media, energy, alcohol, tobacco, government and automotive companies. According to Phoenix Marketing International, only one-third of all households feel that financial firms look out for their best interests.
Even advisors aren't on board. According to Pershing's Second Annual Study of Advisory Success, more than half (53%) of the respondents strongly agree that their personal brand is more important than their firm's brand when it comes to their clients. What have we come to when we don't want to be associated with the company we represent?
No wonder the industry is suffering a marked decline in the number of college students choosing to enter the advice profession. Where will the industry find the next generation of talent when only 12% of new financial professionals are entering the industry directly from college? Career changers offer one recruitment channel, but large organizations remain focused on enticing people away from other firms rather than developing their own talent.
New talent development is an urgent issue because of absolute shrinkage in the number of financial professionals. Cerulli predicts a negative 1.8% compound annual growth rate for advisors; projecting that CAGR forward to 2030 shows 226,000 advisors departing the business without systematic replacement.
Yet getting back to basics: How can young people contemplate financial services as a career when personal economics are not addressed in high school, let alone elementary school where real financial literacy could take root?
Only 14 states require a high school course in personal economics. Anecdotally, schools that offer this class as an elective have difficulty finding both qualified teachers and sufficient student interest to run the course.
This problem has persisted for decades. A recent study found that almost half of adults who closely monitor their finances say they learned about personal finance from their parents or at home. (Check out: www.consumerfinance.gov/blog/talking-to-our-daughters-and-sons-about-personal-finance).
While it's heartening that many parents take this issue seriously, I question whether they themselves are well-grounded in the areas of saving, budgeting, borrowing, investing and managing risk. The low savings rate and high bankruptcy rate paint a more discouraging portrait of financial education on the home front.
It's Not Hopeless
We are a profession of big ideas, but real progress starts with a few small steps. I have participated in many conferences where these issues have been raised and some great solutions have been proposed. As with many exciting plans, however, the participants enjoy the idea for a few days then let their enthusiasm gradually fade away.
Several years ago, Jim Joslin, a well-regarded financial planner in Boston and CEO of TFC Financial, inspired me with his efforts to help his former school. Subsequently I reached out to my former high school to develop the concept of teaching financial literacy. Initially I helped the school purchase classroom materials on personal finance, but now I am attempting to expand this initiative. I am calling it “The Gladstone Project,” after the school I attended in Michigan's Upper Peninsula.
In states like Michigan, personal economics is an elective course in high school so getting proper funding and help is difficult. According to Dr. Jay Kulbertis, the superintendent of my former school district, schools need teacher training, teaching manuals and classroom materials. About 20% of the senior class now participates in the personal economics course, but my goal is to double that amount, if not increase it to 100%.
We are exploring ideas such as adding another teacher with a focus on economics, creating additional coursework based on the needs and desires of the students, setting up summer internship programs with financial planning firms in the Midwest (who would also commit to practical on-the-job education of these students) and providing partial funding of college scholarships for those who achieve a certain level of proficiency in the subject. At this stage, we are trying to turn these ideas into reality.
I share my personal story as an example, not because I want or need the attention. I hope to inspire you to impact the lives of others, to “change the world,” as Admiral McRaven said to the University of Texas graduates. What are your ideas? Is there a concrete action that you feel would address a problem in our business? Are you willing to share your idea with me so that I may help promote it and perhaps even adopt it for the small arena I am playing in?
How will you help build an industry to last? Tweet using #FutureofFinServ to share the impact you will make on the future of the financial services industry. Many financial advisors offer to hold seminars, workshops or one-hour talks at the local college or high school. But how about something more systematic, something focused on the very basics of personal economics? How about if you “Adopt Your High School”?