“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.