Like many colleges and university programs around the country, it is at times difficult to get students to enter a particular degree program. It’s a tough job because you have to convince a group of “kids” that they should commit to a specific educational track. Research shows that a high percentage of incoming freshmen are undecided on their major, and even more change majors during college. In addition, how many of you actually work within the degree you received?
My alma mater, Kansas State University, has the same problem within their CFP-registered university program. Over the years, we’ve seen the program go through highs and lows in the number of students entering its financial planning program. K State determined that it costs the school about $2,000 a year for each student in the program to get a degree in financial planning. As a result, the goal is to give students (who don’t yet know what they want to do) an incentive to join the CFP-registered program to help them make up their minds. To increase their enrollment forecast, Kansas State decided to solve an industry problem — the talent shortage.
While this is just a small step, we believe the financial planning community could also come together to solve the talent shortage on a much larger scale: If every planning firm in the country would sponsor one scholarship of only $2,000 at one of the many financial planning programs, every year, we would more than solve the talent shortage.
This isn’t just charity. We consider it to be enlightened self-interest. The talent shortage is real, with tangible effects on the financial planning industry. To grow, most financial planning firms need to add more financial planners. Yet the demand for young planners is driving up their gross margins.
Low Supply, High Demand Pushes Comp Up
Data from our ongoing Kaleido Scope business assessment for advisory firms shows that employee recruitment is one of the top three issues in the industry. The supply of new associates is so low that the demand is driving compensation up to astronomical levels. We know that compensation for associate advisors and lead advisors has increased over 20% during this past year alone. This is creating quite a dilemma for smaller advisory firms with limited resources to invest in new financial planners.
However, the issue isn’t just isolated to small firms with smaller budgets. We are seeing the effect on large firms to be just as harmful. While the large firms are able to pay the high compensation, they are unable to meet the client demand for their services. The result: overworked lead advisors. In the past, we’ve seen client-to-advisor ratios hovering around 85 clients to one advisor. Today, we are seeing those ratios rise to above 120 clients per advisor. The result is falling service levels.
When a service-focused business, such as an independent advisory firm, has the combination of rising operating costs (due to a shortage of talent and increased compensation for that talent) plus falling service levels, we end up with a storm of issues that change profitability, including falling referral ratios from clients.
Of course, the other side to that coin is that it’s creating an opportunity for financial planning schools (like K-State) and for young financial planners who are graduating from those schools, or who are currently employed at advisory firms but have become unhappy with their particular situations.
In fact, this is the best time we’ve ever seen for younger planners to change jobs: from a career standpoint, it’s fabulous. For those who own firms, it’s painful, sometimes even deadly.
If You’re an Employee …
Let’s start with the situation faced by employees of advisory firms.
I believe every lead advisor and associate advisor who isn’t happy should be looking for a job right now. Each advisor working in a firm today has negotiating power. Firms are growing faster than ever with falling profit margins. There are few advisory firms that will give up their growth in favor of their margins. What that means is that they will pay big bucks for really great talent.
Here’s how to find a new job:
• If you are not working directly with clients already, look within your own firm first. Chances are that like every other advisory firm, your firm needs additional financial planners to meet its growth goals. To do so, most firms need new advisors who can work with new clients.
If that’s your goal, the easiest way to get a job you like is with your existing firm: by convincing the owner that you are ready to work with clients. To do that, most advisors need to improve and demonstrate their people skills, which means learning to be better listeners. A good rule of thumb is to talk only when it’s necessary to keep the conversation going, or to clarify the other person’s point.
Then, learn to ask the right questions. The best communicators don’t do a lot of talking: They do a lot of listening. And for an owner-advisor to trust you with their firm’s clients, you need to demonstrate your ability to communicate well.
• If you are already working with clients in your firm but are not happy, make a list of the things you want in a new job. If you decide you don’t want to stay at your current firm, you have a big advantage in today’s job market: your experience, and your education if you have graduated from a CFP-registered program.