The financial advice industry continues to get younger at the same time that the sector is poised for expansion as firms double their hiring rates in 2019 from a year ago, according to the 2019 FA Insight Study of Advisory Firms: People and Pay.
The report from TD Ameritrade Institutional, which acquired FA Insight in 2016, draws on data received from 405 financial advisory firms with a minimum of $100,000 in annual revenue that have been in business for at least 12 months, the company said Tuesday.
The latest study, based on responses to an online survey conducted between Feb. 5 and March 29 this year, found that the media age of lead advisors dipped to 46 this year from 47 in the 2017 study and from 50 in 2015. The median age of firm associates, meanwhile, dropped to 42 from 43 in 2017 and 44 in 2015, and the number of firm owners 40 years of age or younger this time equaled the number who were more than 60, according to the biennial People and Pay study. The median age of owners was 49, the same as it was in 2017, but down from 52 in 2015, the company said.
The continued declining age of the advisory community is “reversing a graying trend that had many advisors worried about the sustainability of the industry” just a few short years ago, the company said in a news release.
Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional, attributes the declining age of members of the advisory community to the fact that “it’s expensive to hire really experienced advisors.” Because “it’s been so tough to find them,” more firms have started opting to instead hire younger, less experienced people they can “groom from within,” she told ThinkAdvisor. “We were pleasantly surprised to see that the median age is continuing to go down,” she said, adding another surprise was that firms indicated it wasn’t as hard to find talent to fill revenue-generating roles as it had been in the past. The biggest challenge for the firms now is “making sure that they’re building scale and becoming as efficient as possible” to remain profitable, she said.
Industry research in 2015 had shown that a wave of baby boomer retirements would likely outpace the expected arrival of young advisors, resulting in a shortfall. Cerulli projected in its 2014 Advisor Metrics annual study that almost 25% of advisors would leave the profession within a decade, and its 2013 Metrics study found that for every eight advisors leaving the profession, only three new advisors were ready to take their place.
But advisory firms are now stepping up their efforts to attract new blood to the sector and expect to double their hiring rate in 2019 compared to 2018, with 61% making at least one hire last year, according to TD Ameritrade Institutional. The largest firms plan to grow headcount 10-12%, bringing on board seven full-time equivalent staff, it said Tuesday.
Meanwhile, senior revenue generators and advisory firm staff, who “have a proven ability to navigate market volatility and ease client concerns, have seen compensation rise over the last two years, whereas compensation for less experienced revenue generators has fallen,” the firm said. The compensation of associate advisors, who now tend to be younger and less experienced than in prior years, has decreased 8.5%, it said.
The quest to find experience could help explain why firms continue to recruit lateral hires from inside the industry, it said, noting RIAs typically hire mostly from other independent RIAs for revenue roles, although they may also consider recruiting from other financial services firms and wirehouses. People continue to be the biggest investment for advisory firms, accounting for 77% of the average firm’s expenses and 59% of total revenue, according to the report. The median revenue per revenue role was $547,645 this time, an increase of 14% over the past two years, while the median revenue per full-timer was $228,623 this time, an increase of 13% over the last two years, it said.
Just 4% of firms are hiring recent college graduates for revenue-generating roles, while an only slightly higher amount, 6%, are hiring professionals from outside of the financial services industry, it said. But promising trends this time included the fact that 22% of firms brought on at least one new owner in 2017-2018, up from only 13% in 2015-2016, while just under half (46%) of all advisory firm team members were women this time, it pointed out.
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