By Cyril Tuohy
It’s back-to-school season, so it’s a good time to talk about how agents and financial advisors can attract and train a new generation of talent to an industry that, as almost everyone knows, is in desperate need of new blood.
The average financial advisor is in his 50s and that average age is rising. Only 22 percent of financial advisors are under 40, and 5 percent are younger than 30, according to a report published by Ernst & Young (EY) last year.
“For every graduate of a financial planning college program who enters the industry, there are two advisors who just became eligible for Social Security benefits,” wrote Marcelo Fava, a principal in the financial services practice of Ernst & Young.
Fava and his colleagues, Jacqueline Boersema and Ugur Hamaloglu, offered six strategies to fill the “next-gen” gap. Advisory practices, they wrote, should:
- Target technology advances that appeal to younger advisors
- Define the career path from student to advisor
- Cater to next-generation financial priorities in the workplace
- Change the advisor compensation structure
- Ease the financial advisor on-boarding and transition process
- Establish a mentorship structure to grow young financial advisors through collaboration with veteran advisors.
“Two-thirds of students majoring in financial planning opt for jobs such as budget analysts, brokerage agents and investment bankers rather than pursuing a [Certified Financial Planner designation],” the EY consultants wrote in the report titled “The Next Generation of Financial Advisors.”
The total financial advisor population has dropped by 4.3 percent in the last decade, yet by the beginning of the next decade the number of jobs for personal financial advisors is expected to grow by 66,400, according to the EY report.
Separate research conducted by the U.S. Bureau of Labor Statistics shows openings for personal financial advisors will rise 27 percent, or by 60,300 new jobs, to 283,700 by 2022.
Independent advisor channels are most at risk because they tend to have the oldest advisors, according to a report on advisor metrics published earlier this year by Cerulli Associates.
Cerulli Associate Director Kenton Shirk writes that advisory teams need to bring in junior advisors and train them in specific areas of expertise to increase the success rate of the new recruits.
The big squeeze is taking place. If advisories want to remain relevant, they are going to have to adapt to the flexibility and independence that younger advisors have become accustomed to, even disassociating the job from the “stigma of sales,” the EY consultants wrote.
Young advisors who continue down the advisory career path have a lot of fiscal management to look forward to as the oldest members of the baby boomers have begun the transfer of wealth to their children, members of Generation X.
And it is a load of wealth. Generation X, people born between 1965 and 1978; and Generation Y, those born between 1978 and 2000; will have accumulated assets estimated to reach $46 trillion by 2020, with $18 trillion of that inherited from baby boomer parents.
The oldest members of Generation X, born in 1965, are turning 50 next year and will need all the help they can get. Generation Xers will be the first to rely on benefits from 401(k) plans, but workers have hardly done well by them.
Catherine Collinson, president of the Transamerica Center for Retirement Studies and Transamerica Institute, said there’s a big disconnect between what Generation Xers aspire to save and what they have actually saved for retirement.
“Gen Xers estimate they’ll need to save about a million to retire comfortably, yet, as of 2014 the median retirement savings in household retirement accounts is only $70,000,” Collinson said in an interview with National Public Radio earlier this year.