The Advisor Retirement Crisis

The looming shortage of financial advisors has generated all sorts of talk, research, concern — but precious little in the way of an industrywide response.

“Not only are we at a crossroads, we are in crisis mode. Firms aren’t going to feel the effects for a decade, but we need to plant the seeds today. It takes five years, even longer, to bring someone into the business to be competent,” notes Dennis Gallant, president of GDC Research in Sherborn, Mass.

The stakes could not be higher. The shrinking pool of skilled advisors coincides with the highest demand ever from clients seeking advice. One risk is that a talent shortage could drive financial advice further up-market to the detriment of Main Street Americans. Already, in advisors’ offices across the nation, clients have begun to query their advisors about their succession plans. They don’t necessarily like what they’re hearing.

One advisor associated with Schwab recently lost two $10 million accounts. Why? “His clients told him no one else in his organization could take care of their assets the way he could,” said Dave DeVoe, managing director of strategic business development for Schwab Advisor Services. They just didn’t like that the advisor lacked a succession plan. “The bench was very thin after him,” DeVoe added.

While many firms — the wirehouses, in particular — are focusing on career changers as the next-generation advisor, many consultants strongly believe that young people with three to seven years’ experience represent the candidates with the right stuff.

“They know enough to come in and do some planning, but not so much that they think they should be a 30 percent partner and make all these demands,” according to Stephanie Bogan, who heads the Southern California-based consulting firm Quantuvis. By contrast, she considers the career changer a “newbie in the body of a 40-year-old” who’ll demand a $125,000 salary when worth one-third of that. Bogan, by the way, looks at the convergence of the upcoming supply and demand scenario as a “major inflection point” in industry history.

Wells Fargo Advisors and Morgan Stanley Smith Barney will both hire roughly 1,000 trainees this year with amped up programs that include dedicated coaches for each rookie advisor and deep educational tracks that highlight business development and practice management. Notably, the wirehouses are placing more trainees with established teams as a way to build a career path and ensure a higher success rate.

The washout rate of trainees is widely known. The average trainee at Wells Fargo, for instance has 16 years of professional experience but one-third will fail in their first year, according to Mike Zuccarello, managing director of training and development for the firm. Just 50 to 60 percent of a typical class will remain intact after its second year. For trainees who have been placed with a team, that second year number, at 70 percent, is higher.

Unlike a lot of other firms, Raymond James & Associates has pretty much changed its stripes when it comes to its training philosophy — redesigning rather than tweaking.

As Bob Patrick, who heads education and development for RJ&A, puts it: “As an industry, we have to stop trading advisors back and forth and bring in new blood that will become the next generation of advisors.” Patrick points to dentistry as a good model. “You bring in a junior dentist who works with you five to seven years, gets to know the clients and builds the trust up — not some tertiary handoff with a check written. It has to be a meaningful process.”

To that end, RJ&A developed a two-year training program focused on process, planning and community networking. On average, trainees are 25 to 30 years old and are placed with a mentor team in a branch office. There is also on-site training at Raymond James’ headquarters in Florida. After six months, rookies must prove that they have the tenacity to be an advisor — or be booted. Importantly, the trainee is not expected to go into production until the conclusion of the two-year master’s-like program. RJ&A recently placed its first two graduates.

In the past, RJ&A trainees had a 31 percent success rate at the end of three years — a figure Patrick says is no longer acceptable.
“If you look around the industry, this is getting to a critical level. The average age of our advisors is in the low to mid-50s. Even if this works seamlessly, we’re still up against it.”

As Matthew McGinness, managing director of advisory consulting services for First Allied in San Diego, ponders the failure of advisors to plan their succession, he asks the questions that are on many observers’ lips: “Will advisors get religion, so to speak, before it’s too late? Will the industry get it?”
We asked five thought leaders on the topic for their take. Here, in brief, are their big ideas.

1. Create a next-generation environment.

In her role of placing new talent with independent advisors, consultant Angie Herbers has located many young candidates in wirehouses. Why? “It’s like all of a sudden they went to prison,” she says. (She’s also had good luck recruiting from Facebook and Craig’s List.) The headline: Young people want a flex-time workplace where they are taught to be self-directed. “This is how they’ve been educated. When they’re hired into a firm that says you have to be there from eight to five and you have to do these things this way, it doesn’t inspire people,” says Herbers, president of Angela Herbers and Associates in Manhattan, Kansas.

Among her other suggestions: Before training begins, teach the person the importance of being a good employee. Make sure everyone has a mix of creative and mundane tasks. Consider revenue-based bonuses, a preference of young employees. Replace out-of-date technology. “Advisors don’t want to hear it,” Herbers says. “But most of this stuff needs to change for the next generation.”