Doug Wright (left) of The Investment Center and Eric Schwartz of Cambridge Investment Research at the 2014 Broker-Dealers of the Year roundtable in Chicago. (Photo: Tom McKenzie)

In the in-person roundtable featuring the leaders of Investment Advisor’s 24th annual Broker-Dealers of the Year, we asked them to respond to four common scenarios faced by independent BDs.

Here’s how David Stringer of Prospera Financial, Doug Wright of The Investment Center, Kevin Bachmann of Questar Capital Corp. and Eric Schwartz of Cambridge Investment Research responded to the third scenario on how broker-dealers should respond to the aging of the advisor workforce.

Scenario 4: Women and the Aging Advisor Workforce

In your year-end business review, your CMO delivered a report that showed the average age of your reps is 58, and that women account for only 7% of your reps. Moreover, your biggest producers’ average age is 61, and there’s only one woman on your chairman’s council. You know you have to grow younger and more feminine, and that poaching other BDs’ top reps is only a stopgap. Yes, this is an industry-wide issue, but it’s gotten to crisis proportions for your firm.

What do you do?

Kevin Bachmann, Questar Capital: The parent company [Questar Capital is owned by Allianz] is very actively involved in women. “Women, Power and Money” is a white paper they sent out a couple of years ago. We dovetailed into that and really focused the last couple of years on building out our female advisors. Growing up with six women in the house, I’ve got an affinity to helping that.

Half of my direct reports right now are female. I think of our new recruits to date, 16% of our new advisors this year are women. We’ve set up a couple other networking events specifically designed for women.

We’re going to kick off a new one in the fourth quarter called Questar’s Women’s Link, which will really be an opportunity for them to get together and share and learn about their practices. We’ve had a couple different events already that we sponsor, and it’s really been a great lift for us.

David Stringer, Prospera Financial Services: Part of our value prop is basically just culture, intimacy, relationship, high levels of service and core values. That seems to cross generations and gender. We’ve found that we have a younger advisor population and we have a fair amount of female advisors.

It hasn’t been an issue for us. I’m trying to stand in this scenario and trying to understand it a little bit because [with] our approach we have not had to face that as much. Do we have some senior advisors who were looking to retire? Yes, absolutely. We’re trying to help those guys through their own successions, to find a way to keep those assets at the firm.

We’ve found that, No. 1, the independent space is a great place for female advisors to find their work-life balance. That’s a big part of what we sell in our value proposition: that work-life balance is great for females, but it’s great for males, too. Nobody can go wrong with work-life balance.

We’ve found that we attract a lot of former broker-dealer owners; small broker-dealers who had a nice practice and they realized the firm no longer serves them, but the practice does. Several of those were female broker-dealer owners.

We’ve got internally something called the “diva club.” It’s [all] females, and they have a little community inside of our firm. Not sure I’m adding value to your scenario, I’m just describing our firm. We have found that the boutique firm has been a great place for younger and female advisors.

Doug Wright, The Investment Center: I concur. Right now, we’re about 12% female advisors. That trend has been growing, and not only that, we have pockets of reps who specialize in female investors, and I think that’s a growing part of the population.

One stat that I saw recently is about 75% of wives will leave the husband’s financial advisor upon death. With those kind of figures, that’d be transitional business, and a lot of that’s to do with the financial advisor not attuned to the spouse. We have a number of reps that are specializing in that type of market, women in transition, which we feel is an up-and-coming business, especially in the aging baby boomers.

Jamie GreenInvestment Advisor Most people would say Wall Street is not a place that welcomes women.

Wright: That’s where you have to change, and that’s what we’ve done by providing our reps the education and platform to get out there in front of the groups. They go out there, and talk to the women’s groups, and that’s where our marketing support has been heading. We have a number of female advisors in our office, or in our firm, that get together and also share and have their own little group together, and that seems to work out.

Eric Schwartz, Cambridge Investment Research: Let me hit the first part of your question, the age factor. At Cambridge the average age of advisors is about 51. It was actually a little higher, about 53, a couple of years ago.

About five years ago we got heavily into succession planning, not just the CPG part with finance and all that [Continuity Partners Group, a Cambridge company supporting advisor succession], but just a whole bunch of other tools that are available even if they don’t want to take the full step of doing CPG. What we have found, especially with the ones we work with more closely in CPG, is that as they start doing succession planning, they quickly figure out they don’t have the right people in place.

I’m talking to one group where there are two partners. One’s about 66 and one’s maybe 55, and it’s always been, “When I’m done, she’s going to take over.” Now they have three [new advisors], one female, two male, in their mid- to late 20s, and they’re like, “Oh, we’re both going to retire about the same time and they’re going to take over.” There are three registered reps now that weren’t there, and wouldn’t be there, I don’t think, if they hadn’t started their succession planning.

It used to be that the big organizations, the wire firms and the insurance companies, trained the young advisors, and that’s not happening that much anymore. Who is starting to train them is the successful advisors, and the need of succession planning is sometimes a thing that woke them up to [realize]: “Oh, I don’t just need to hire another administrative assistant. I need to hire somebody that can actually move up.”

That’s why our actual age seems to be going down. Some of the older ones retired but the young ones have been coming in the other side. Of course, those younger people bring all kinds of energy, technology expertise, that’s really helped the firms, and they’re usually reasonably low cost.

On the female side, 16.3% of what we call active advisors are female. The number is 26% of our total advisors. Interestingly enough, I don’t have the exact number, but we know it’s a significant percentage of the 16% that are now active, used to be assistants.

That seems to be a track that’s more common on the female side. They don’t come straight in as a broker. They come in as an admin, and all of a sudden they’re invaluable. Some of them prefer that role and some of them say, “Let’s step up and do this other role.”

The difference between the 16% and the 26%, at least a third of those are people that have expressed an interest in being an advisor within five years.

To me, it’s an enigma to some degree why it’s not 50% already. You look at the number of CPAs, attorneys and doctors, it’s all around 50% female. In some cases it’s over 50% female. Why would financial planning be different? It’s a little more seen as a sales thing perhaps, so maybe women aren’t as comfortable? I don’t know exactly why, but given that rapid trend from 30 years ago when–what percentage of doctors were women? It had to have been the same—15% or 16%. Why has ours not changed?

Some of the demographics of females controlling more and more of the money may be a factor, but I think this new way that people are coming into the industry, more of those assistants are going to be women and therefore I think we’re going to see the number go up.

The Young, Women, Spouses and Children

Danielle Andrus, Investment Advisor: Have you found that your female advisors start out in other positions and then become advisors, or is there another way to attract more female and younger advisors?

Bachmann: I see more spouses start to get into the business as well, so there’s a lot more husband-wife teams. Also, from a succession perspective, if something happens to one, they want to make sure that the business stays. That’s a quasi-succession plan there,.

We have an initiative going where we will help sons and daughters come into the business. It’s not a formal training program or anything, but we’re open to having that type of an arrangement where that’s their succession plan.

Our top two reps this year both have brought in their [children]. One brought their two sons in the business and the other, Debbie Andrews, brought her daughter into the business as well, so we’re starting to see a little bit more of that, which is good for the industry. I like to see the younger, more energetic, more technology knowledge coming in. It’s a great thing.

Wright: We’ve seen the same thing where we’ve had more and more husband-wife teams join us. Recently we’ve had a lot of daughters, which is interesting too, coming in. It definitely is a succession plan. That’s what it’s planned for.

Do we purposely recruit women? No. I think we recruit just advisors. We tend to have more seasoned advisors come to us, so not so much developing from the ground up, but we do see a little bit of the trend of Eric’s model, where the assistants are starting to get licensed. That’s the first step, and then they become licensed sales assistants and move on from there.

Bachmann: A lot of times they have the best relationships with the client.

Wright: They do.

Bachmann: When you’re dealing with the client on a day-to-day basis and handling a lot of their issues…

Wright: They know the clients hands-down.

Green: They know the technology maybe better, too, so they can get answers more quickly sometimes.

Wright: What they need is just the sales training to make them successful.

Schwartz: Sometimes we find that in succession, you have a rainmaker who’s head of the company. They tend to bring in the opposite, somebody who’s really good with the details, and the admin so they can get out in front of the clients.

Sometimes that admin actually has the gift of people skills and can grow into a rainmaker. More often we find out that what happens is when the senior person’s ready to retire, you need to bring in a second person who’s more of a salesperson and then match them as an equal partner. So you’ve got the chief marketing officer you hired to replace your old chief marketing officer, and then you have the person that was originally your sales assistant who’s now the COO. To some degree they’re going to own the company jointly, and now you have both sets of skills there.

It’s only some percentage of these people who are really going to be capable of going out and getting new clients. Whether it’s a male or a female assistant, not all of them are built that way, but they can be great servicers. I would say if a third of them could really be the kind of rainmaker that their boss was, that would be a lot.

A Marketing Challenge?

Green: You were mentioning the number of physicians who are women. I wonder if that’s one of those professions where it’s often a father to a son to a daughter. Is that part of the answer for both succession planning and getting younger people into the business? If kids see what the life is like and that it’s appealing?

Stringer: I get the feeling that the “helping people” part has not been well marketed. It’s typically the incentives and the financing. I don’t know if that holds people [back] from getting into this industry. I don’t know, but in the independent space, there’s not a glass ceiling in our world.

Maybe there is on Wall Street, but on Main Street everybody’s got an equal shot of setting out their shingle, and drawing clients in, and being a pillar of their community.

Schwartz: I think you’re right that the image of this industry, to some degree, is still stuck in that industry we talked about of 30, 40 years ago, where it was a sales position. We’ve seen most movies about stock brokers are not about the financial planner who goes out and rakes leaves for the 90-year-old client because she was ill. Who would think of doing that—a $500,000 producer? But you hear those stories all the time.

Young people today want to know, “What is this job going to do to help the world?” They want to know that. When we hire them at Cambridge, it’s like, “Yeah, but what are you guys doing to help the world?”

I don’t know if the average 20-year-old knows what an independent financial advisor is and trusts them. In fact, if anything, I think young people tend to trust institutions, and probably this industry, less because it’s a different era.

Stringer: Who gets the news? It’s the bad apples. It’s not the guy who’s raking the leaves for the 90-year-old.

Wright: He sees the next Ponzi scheme out there. That’s all that’s in the news.

Stringer: There is probably a PR issue around our industry. When you talk about doctors, everybody pretty much knows that they help people. I don’t know that that’s the first thing that pops into people’s minds about financial advisors.

Wright: I think our approval rating is under Congress’.

Stringer: It’s right there with politicians.

Schwartz: Actually, doctors have moved down considerably too, surprisingly—maybe not surprisingly—but yes, I think there’s a PR issue there to some degree.

Wright: Do you think that millennials have more of an immediate need for income than just starting out in the financial business can provide them? Maybe that’s one of the reasons we’re not seeing them much. All I see right now is the instant-gratification generation out there versus getting in [the business] and learning, and doing it.

Green: I don’t know that there’s a simple answer to that. We’ve written about studies that show that millennial types certainly get satisfaction from different things, and feel the rewards of working in a different way than older people.

One thing I’ve heard said is boomers, if they want to show you how good a job they’ve done, they tell you how many hours they worked, while younger people will say more about what they accomplished. I think there’s some truth in that.

Pioneers of the independent advice business are folks who work many long hours for many years, and maybe without a lot of return, before they were able to approach even the wealth levels of their clients.

Andrus: I’ve seen some studies about how younger people do think about the different ways their work impacts society. They want to understand how what they’re doing [affects] other people.

Schwartz: Somewhere along the way vacuums get filled, and if indeed any of these older advisors actually retire (and some of them seem to be hanging in there for a very long time; the money’s good, they like what they’re doing, et cetera, et cetera), but obviously supply and demand does [have an] impact. We’re seeing it, as I said, through the succession process.

What an opportunity for somebody who comes in and works for five or seven years and all of a sudden is buying a practice that’s worth millions of dollars, that generates half a million or a million take-home. There’s not a lot of jobs you go into that give you that opportunity.

Stringer: You know what needs to be part of that conversation also is the number of families and people that you’ve had a positive impact on. It’s not just the economics of the deal. It’s that you are helping generations. You’re helping people with long-term care needs. You’re putting kids through college. You’re helping with retirement needs. You’re giving peace of mind to these families that you serve and that’s the message.

I think too many times we speak to the economics and incentives, but the piece that’s missing, that people don’t connect the dots to, is that higher purpose you serve helping people, and how you’re actually delivering some good to the people that you serve.

Schwartz: Agreed, and I think the regulators don’t really see that side of it too much either when they’re focused on fiduciary duties and all these things, and don’t quite understand how meaningful the 25-year, 30-year relationship is.

I just want to come back to one thing we said before. I don’t know about you all. If I had to just guess [how many of our senior advisors] have their kids in the industry, I’m thinking 10% maybe.

Stringer: Ours is higher than that.

Wright: Ours is a little bit higher than that.

Schwartz: Maybe, but it’s not 50%, I would assume.

Wright: No, it’s not 50%.

Schwartz: Most of them at a certain age have somebody, but it doesn’t seem like the kids are just jumping in like wildfire in our case. Maybe it’s a little bit higher in your case. Maybe the 10%’s wrong. I’m just pulling a number out of my hat, but it’s not a super high number. What number do you think: 15%, 20%?

Wright: Probably in there.

Stringer: It’s under 25%, but it’s greater than 10%. It is our more senior folks. People who have kids who are old enough.

Schwartz: That’s part of the problem. It’s not the 20-somethings. If you didn’t have kids until you were 30, you can’t do it until you get them in and really have them be serious until they’re 60.

Stringer: I’m still waiting. At my age, I’m still waiting for my kids to get to a seasoned spot where they could make that choice.

Schwartz: That’s true. The older ages at which kids are being born in our generation affects how long it is before they can be mature enough to be interested in this kind of business, in many cases. When everybody retires, what that number is, it may be a little higher.

Stringer: If you slice your data as to how many of your advisors are grandparents and what’s the percentage that had family members in there, it would be a higher number. You’ve got to be old enough to where your kids are old enough to need to provide for their families.

Schwartz: If the kids are over 30, the percentage that are in the business is going to be higher. Obviously, if they’re 18, they’re probably not quite there yet. What’s the age you can get licensed at?

Wright: 18.

Visit the 2014 Broker-Dealers of the Year home page for more coverage and to see the full discussion for each scenario.

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