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.