Aging-Out Advisors Create An Experience Gap

By Brian O'Connell

There’s an “experience gap” brewing in the financial advisory sector, as about 33 percent of all financial advisors are expected to retire in the next decade.

Meanwhile, 43 percent of all U.S.-based stockholders are 55 years old or older, according to On Wall Street.

While all that should change the face of the advisory industry, there’s a great opportunity for younger financial services professionals to step up, land bigger clients, cut better deals, and increase their visibility at their financial advisory firms.

The Moneta Group, a financial services firm based in Clayton, Mo., is already taking aggressive steps to creating its own firm-wide succession plan that paves the way for younger advisors.

“The objective was not to simply get top dollar for our stock and our client practice,” says Gene Diederich, CEO of Moneta Group, in an interview with Fidelity.com. “Our ultimate goal was to remain independent and to facilitate the transfer of clients—as well as employee stock—from one generation to the next.”

Over the course of the past decade, Diederich and his team created what the firm calls a Sustainable Business Planning Program, an initiative that clears a path for younger firm members to attain partnership levels. Individual firm partners act as mentors on various company teams that focus on different aspects of financial services channels, like estate planning and retirement planning. With proper training, Diederich says, younger advisors develop the skills they need to become smarter, more seasoned, financial professionals.

Once trainees graduate, they’re offered a chance to buy company stock, via interest-free loans provided by management. The idea is to build entrepreneurial owners within Moneta Group – a farm system, of sorts, for the firm.

“If we can’t sell company stock to the next generation, we’re going to have to sell it to some outsider, and then we won’t be independent anymore,” says Diederich. “So we’ve gone to pretty significant lengths to facilitate the transfer of our stock to the next generation and make it attractive for them.”

Stabilize, Evaluate, Accelerate

A new report from Fidelity Clearing & Custody Solutions, “Future Leaders Study,” demonstrates the challenges and the opportunities younger advisors (a/k/a future leaders) face. It also points out the rewards advisory firms can experience if they properly groom young talent, and the penalties they face if they remain stagnant on the succession front.

This from the study:

“The study spotlights the challenges these Future Leaders faced in their early years, to the opportunities they have embraced, to what can drive them to stay – or potentially leave – their current firms.”

The Fidelity study concludes firms can attract and elevate those much-needed future leaders in three key ways: “stabilize, evaluate and accelerate – in order to groom them from "advisors with potential" to the next generation of firm leaders.”

Unfortunately, the same report shows that 75 percent of registered investment advisory firms don’t have a solid succession plan in place, and that’s a problem, as the financial planning industry faces a shortfall of 25,000 advisors across the U.S. within the next five years. Further hampering efforts to cull the next generation of financial advisory leaders is the fact that only one in five advisory trainees at industry firms make it as professional financial advisors.

“You hear a lot about the war for talent, but I don't think firm leaders take the second and third rounds of battle as seriously as the first,” says Jylanne Dunne, senior vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “Recruiting smart, motivated individuals is important, but can you keep them and can you groom them into future leaders?”

"Individual motivations may differ, but there are some underlying basic needs and aspirations of next generation advisors which firms are, in many ways, already capable of supporting,” Dunne adds. “The real opportunity exists in formalizing this support to develop and retain top talent.”

As Fidelity puts it, by providing more supportive team structures (for stability); by creating “problem solvers and builders” (for evaluation); and by enabling top talent to excel via clearer career paths and harnessing technology (for acceleration), advisory firms can and will build the next generation of industry leaders.

The downside of not doing so is clear, and problematic.

"Advisors continue to switch firms and once they do, they are better paid than they were before,” notes Dunne. “Firms are competing — with autonomy, profit-sharing, and education, to name a few.”

“At the end of the day, if you aren't investing in your top young talent, someone else will."

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at brian.oconnell@innfeedback.com.