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How Advisory Firms Are Responding to Demographic Challenges

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Throughout SIFMA’s Private Client Conference in New York City Thursday were discussions about the major demographic challenges confronting the financial advisory industry and about how firms are responding.  The issues are the same ones that the industry has been facing for some years now, but they are becoming more critical as the populations of advisors and their clients age and American society grows more diverse.

Here are some highlights from those discussions and the solutions offered.

The Need for More Female Advisors

Sixty-five percent of the future growth of the financial advisory industry will come from the 50 largest metropolitan markets in the U.S. and Canada, and those markets tend to be very diverse, said Jim Weddle managing partner, at Edward Jones. “To serve them well we need a far more diverse group of financial advisors.”

The group should diversify not only by race and ethnicity but also gender. Simply put, the industry needs more female advisors because it needs to attract more female clients. Not only do women live longer than men, but they will control 70% of the wealth transfer from baby boomers to their children, according to Weddle. That transfer involves about $40 trillion in assets, which is more than twice the annual GDP of the U.S.

In addition, said Weddle, given an equal opportunity to be served by a female or male financial advisor, widows will choose a woman.

In younger households, ages 30 to 39, women dominate decisions about household finance.

The Importance of Millennials

The financial advisory industry needs more millennial advisors to attract more millennial clients. Millennials now outnumber baby boomers by 83 million to 75.4 million, and they are more diverse than boomers, according to the Census Bureau. A little over 44% of millennials consider themselves part of a minority race or ethnic group, according to the bureau.

“Millennials act differently, embrace it,” said Weddle. “They are your future employees, your future clients.”

Lisa Kidd Hunt, executive vice president at Charles Schwab & Co,. told a panel called “The Financial Advisor in the New Economy” that firms “need diversity to reflect the clients looking to be served … We can only take from each other for so long.”

She added that younger employees are also interested in a different type of working environment than the traditional one that has dominated the industry — an environment that includes flexible hours, for example. “We need to create a compelling reason to be in this business … to have some sort of excitement to attract the best and the brightest,”  said Hunt. “The industry is not doing that as well as it could.”

The younger generation of potential advisors also places a “great importance on the significance and impact of work they do,” said Weddle.

What Boomers Need

In the meantime, baby boomers still dominate the financial services industry, both as advisors and clients, but the needs of those clients are changing as they retire and as they age.

Every day 10,000 boomers retire, and many of them will be withdrawing funds from their retirement accounts. As they move from accumulation to decumulation in their retirement portfolios, advisors, too, will have to adjust. Preservation of capital will be paramount, though many investors will still want, and need, their assets to grow. Also, advisors need to find another word for “decumulation,” joked one panelist.

John Vaccaro, the CEO of  Westport Resources Investment Services in Westport, Connecticut, explained the problem: “When I started out 30 years ago, for every $2 coming in [to the firm] $1 went out. Now for every $1 coming in, $2 is going out. We need to be more creative bringing in new assets simply to stay even.”

To do that, advisors need to attract younger workers.

Another challenge posed by this demographic change: the need “to marry investment research to the distribution phase,” said Sue Wilson-Perez, executive vice president of Wealth Management Solutions at Ameriprise Financial Services. “Most research is tied to accumulation. “

Ways to Attract Younger Workers

Advisors on the panel “Small Firms: Best Practices for Growing Your Firm” offered some of the ways they’re trying to attract younger advisors, not only to bring in younger clients but also to succeed retiring advisors.

Both Keith Albritton, president and CEO of Allen & Co. of Florida, and Stephanie Elliott, chief operating and compliance officer of Chapin Davis, described the overtures they’ve made to universities.  Elliott met with the dean of quantitative mathematics at Bradley University in Peoria, Illinois, to create an investment team that subsequently built an equity portfolio. Of the nine students on that team, eight have agreed to join the firm, where they will be learning from and working with experienced advisors.

Albritton also said his firm created an employee stock ownership plan four year ago, which not only helps retain advisors but also “mitigates the risk of younger advisors taking business from older ones.”

Two advisor training programs focused on salaried jobs. Two years ago, Janney Montgomery Scott established a financial advisory career training track, which just graduated its first class in December, according to Jerry Lombard Jr., president of the firm’s Private Client Group. Of the 10 who signed up, five graduated and four were moved onto firms’ advisory teams. 

Wells Fargo Advisors Financial Network started a Financial Relationship Advisor program less than a year ago, focusing on serving a pool of “underserved clients,” with roughly $74,000 to $250,000 in assets. “There are a lot of people we would love to hire but many are not interested in commissions,” explained Kent Christian, president of the network.

One-hundred-year-old Sage, Rutty & Co., which “has struggled with recruiting,” is now in the process of hiring its first director of recruitment, said Wayne Holly, president and chairman.

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