Companies Should Not Ignore Advisor Succession Planning



Last year’s roaring stock market could skew financial advisor satisfaction levels, and that could come back to haunt company executives who need to start now to groom the next generation of leaders. Consumers may credit an advisor for their investment success when they are benefitting more from the resources of an advisor’s firm.

The Standard & Poor's 500 index delivered a return of 30 percent last year and the benchmark index is up another 6.1 percent in the first half of this year. As the stock market does well, advisors benefit as they manage more client assets.

It would be ill-advised for executives of advisor companies, however, to sit back and overlook succession planning or ignore changes that need to take place to retain advisors, said Michael Foy, director of the wealth management practice at the consulting firm J.D. Power and Associates.

The correlation between client satisfaction and advisors performance is “inflated by folks coming off a very good year,” Foy said in an interview with InsuranceNewsNet.

The latest advisor satisfaction levels were reported in J.D. Power’s 2014 U.S. Financial Advisor Satisfaction Study. The study, conducted between January and April, is based on responses from more than 3,900 advisors.

A big generational shift will require companies to have the right tools in place to nurture and groom a new generation of leaders and middle managers.

Foy said that the average financial advisor in his or her mid-50s and about one-third of active advisors are looking to retire in the next 10 years.

The news regarding the coming shortage of advisors isn’t exactly new. It’s been broadcast for several years through a multiplicity of surveys and analyses of the market.

Not surprisingly, advisory companies that mentor young advisors have a competitive advantage over other companies but the survey reveals that sometimes advisors are not always aware that their own companies offer mentoring programs.

Satisfaction is higher among younger advisors, those with less than 10 years on the job who participate in a mentoring program compared with the satisfaction levels of advisors who do not participate in such programs, the survey found.

Despite the value of mentoring programs, as many as 33 percent of advisors are not aware of whether their firm even offers a mentoring program, suggesting that part of the challenge is related to effective communications, Foy said.

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A generation ago, young advisors could build a book of business through cold calling but that’s not the case anymore, he said.

“Nurturing is necessary to build holistic wealth management,” Foy said.

As independent advisory firms have grown, some are trying to match the larger wirehouses in terms of what they provide in technology and mentoring, he said.

In the employee advisor segment, Edward Jones ranks highest for a fifth consecutive time with a score of 904 out of 1,000 points. Raymond James & Associates ranks second with a score of 867, followed by RBC Wealth Management with a score of 834.

In the independent advisor segment, Commonwealth Financial Network ranks highest for a fourth consecutive time with a score of 954, followed by Cambridge Investment Research with a score of 913 and Raymond James Financial Services with a score of 899.

The other area in which the survey revealed a big gap was in the use of mobile technology and social media.

Respondents said technology was a big differentiator as a barometer for satisfaction, and progressive technologies in the financial advisory field have drawn new talent, Foy said.

Among advisors using smartphones and tablets, 84 percent said their companies provided smartphones or tablet-friendly tools but only 28 percent of advisors are using both devices for business, the survey found.

“So there's another disconnect there,” Foy said. “Firms are developing tools but if advisors are not properly trained and sold on the value of these things, then firms still have some unfinished work to do.”

In the realm of social media, advisory firms remain conservative, even restrictive, due to compliance concerns as regulatory agencies have been “fairly slow to move and vague with giving direction,” Foy said. “They recognize there's risk with advisors doing whatever they want.”

Earlier this year, the Securities and Exchange Commission (SEC) issued new rules around the extent to which advisors could cite or write about products and services in testimonials in magazines. Last year, the SEC authorized companies to use social media outlets to announce key information in compliance with Regulation Fair Disclosure (FD).

Foy said companies need to help advisors use social media tools effectively.

“It’s not just a question of taking the gloves off,” he said. “Using social media takes a lot of time and advisors will need some handholding and some help.”

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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