The financial advice industry is getting younger, according to the 2017 FA Insight Study of Advisory Firms: People & Pay.
The report from TD Ameritrade Institutional, which acquired FA Insight in 2016, draws on data received from 388 financial advisory firms. It finds that the median age of lead advisors has slipped by three years to 47 since 2015.
The study also finds that the median years of experience for an advisor has also declined, to 18 years from 20 years in 2015.
(Related: Behind the Numbers)
Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional, attributes this to the fact that more firms are hiring recent college graduates to fill client-facing and revenue-generating roles.
“We think what we’re starting to see is advisors starting to invest in that next generation of talent,” she told ThinkAdvisor.
According to the study, 31% of firms are targeting recent college graduates for revenue-generating roles.
“These things together are pointing to what we think is hopefully a positive trend," she said. "Where after all these years of talking about the talent shortage and you need to start thinking about the next generation, [advisors] are starting to move in that direction now.”
Industry research has shown that a wave of baby boomer retirements would likely outpace the expected arrival of young advisors, resulting in a shortfall.
Cerulli projected in its 2014 Advisor Metrics annual study that nearly 25% of advisors will leave the profession within the next 10 years, and its 2013 Metrics study found that for every eight advisors leaving the profession, only three new advisors are ready to take their place.
The FA Insight study suggests that this talent gap may now be making its presence felt. The study finds that more than two-thirds of firms reported that hiring for revenue-generating roles — lead advisors, associate advisors and business developers — is becoming increasingly challenging.
“It’s just getting harder and harder to recruit from their traditional sources for revenue-generating roles,” Oligino said. “So traditionally what an advisor would do is go out and lure someone from a competitor. Somebody with an established book of business with decades of experience, someone who can hit the ground running right away generating revenue. And it’s just getting harder and harder because people are starting to retire, or they’re not interested in moving because they are three to five years out from retirement.”
As a result of this impending talent shortage, Oligino believes that the recent college graduate pool will continue to grow and become a primary source for advisor recruits.
Another result of the talent scarcity is that more firms are outsourcing, according to the study. Six out of 10 firms have realized labor savings as a result of some form of outsourcing, the study finds. In addition to outsourcing compliance and back-office functions, many firms are using third parties to offer additional services, such as tax preparation and insurance, even if they advertise these services as client offerings.
“Advisors are starting to look at, can they partner with third parties to offer those additional services but not carry that overhead expense within the firm?” Oligino said.
One thing that hasn’t changed much in two years: an absence of formal succession plans, according to the study.
As the ranks of advisers nearing retirement swell, the need for succession plans only grows more critical.
The share of firms with an owner three years or less away from retirement increased from 7% in 2015 to 12% in 2017. According to the latest study, only 37% of advisory firms said they had a viable plan. The rest either don’t have a plan or have plans with serious flaws, such as the lack of deal-financing details or no named successor.
“The numbers show there are still significant amount of advisors without a viable succession plan, but they are starting to think about what’s next and when might they retire or what are their next plans,” Oligino said. “You need to bring in younger talent and start to groom them over the long term so that when you are ready to go they’re ready to take over.”
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