As many financial advisors approach retirement age, the wealth management industry is searching for ways to draw more young people into the profession.
The need for an infusion of young financial advisors is urgent and immediate, said Joseph Maugeri, managing director of corporate relations for the Certified Financial Planner (CFP) Board of Standards.
"We have more CFP professionals over the age of 70 than under the age of 30," he said. "It's important that firms small and large see this as a problem that will only worsen in the short run."
As veteran advisors prepare to leave the profession, baby boomers — members of the demographic bulge that followed World War II — have begun passing their wealth onto their children, often called millennials or Generation Y. Over the next several decades, Americans will transfer about $30 trillion in assets to the next generation, CNBC reports.
While a huge transfer of wealth is good news for the industry, there may not be enough qualified advisors to meet the demand, if more people don't begin choosing financial planning as a profession.
Moss Adams has estimated that the industry could face a shortfall of more than 200,000 advisors by 2022. Citing research by Cerulli Associates, Financial Advisor reports that the average age of wealth advisors in the U.S is nearly 51, with 43 percent over the age of 55.
The industry needs to look for ways to persuade young people to try a career in wealth management, said Kate Healy, TD Ameritrade Institutional's head of marketing and industry sustainability. She oversees the company's NextGen student scholarships and university grants program.
"There aren't enough young people joining the industry because they don't know about it," Healy said. "We need to raise awareness."
One way to draw young people to financial planning is to show them that it's a rewarding profession, she said. According to a recent report by Gallup, approximately 73 million Americans were born between 1980 and 1996. This demographic is having a hard time finding satisfying work. They have the highest rates of unemployment and underemployment in the U.S. Only 29 percent of them feel engaged in the workplace.
Healy believes more young people would choose financial planning as a profession if they realized that it would give them an opportunity to improve other people's lives.
Because many of the millennials began to reach adulthood during the Great Recession that coincided with the mortgage market meltdown, they understand the consequences of not having a sound financial plan for the future.
"A lot of them saw their parents get hard hit in the financial crisis of 2008, 2009," she said.
The more support that young advisors receive from their firms at the beginning of their careers, the more likely these professionals are to experience lasting success, according to LIMRA. (Photo: iStock)
Promoting the profession
Andrew Marshall, an independent financial planner in Carlsbad, Calif., said advisors historically have been focused on sale of financial products rather than providing guidance.
"The idea that financial advisors are trained professionals who have earned specific educational degrees in financial planning is a recent change," he said.
Adam Werner of Donnelly Wealth Advisors is helping to spread the word that the industry has become more focused on providing service. Werner, who serves as president of the NexGen Chapter of the Financial Planning Association (FPA) of San Diego, says universities around the country are adopting training programs that promote high ethical standards.
More young people will join the profession when they understand the focus is on helping investors achieve long-term security, Werner said. "Millennials like the idea of helping people make smart financial decisions."
Another selling point for the profession is that financial advisors generally are well compensated for their work. The U.S. Bureau of Labor Statistics reports that as of 2015 the median annual pay for personal financial advisors was $89,160.
There are two big hurdles when it comes to financial advisor recruitment, Maugeri said. One is that the financial planning profession as a whole has "a very low awareness" of the need for new blood. Many advisory firms haven't acknowledged the problems of an aging workforce.
The second hurdle is that the public's perception of the wealth planning industry has been colored by the steep stock market decline of 2008 and scandals, such as pyramid scheme perpetuated by New York financial advisor Bernard "Bernie" Madoff.
Mathew Dahlberg, a certified financial planner with Main Street Investments in Kansas City, Mo., said organizations such as the CFA Institute and CFP Board are developing and promoting training curricula designed to create a greater sense of public trust.
Competing with robo-advisors
The increased presence of robo-advisors, an automated service that manages investment portfolios online, has led some to worry that the need for real, live advisors gradually will diminish. Healy disagrees. When investment decisions become complex, people will continue to seek out experts to guide them through important decisions, she holds.
"So much of this is emotional," Healy said of financial planning. "It's hand holding. It's the difference between going to a gym and having a trainer help you through it."
Maugeri agrees that robo-advisors can't replace the human factor. People who use robo-advisors alone risk making incorrect assumptions about such things as inflation, rates of return on investments, and income during retirement, he added. Most investors will continue to seek personal advice.
"Having a set of eyes to guide you down the path for most Americans is probably the way to go," he said.