Why Does the Financial Advice Industry Have a Retirement Problem?

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Stop me if you have heard this before: there is an age problem in the financial services industry. With the average age of advisors hovering around 50-years-old, and 43 percent of advisors over the age of 55, the industry is bracing for retirement in droves. In fact, according to a study completed by Cerulli Associates, nearly one third of advisors plan to retire within the next decade and an estimated 200,000 advisors could retire by 2022.

At the crux of the issue is the question: who will inherit, purchase or manage the business when this retirement wave happens?

The industry better get busy engaging, training and empowering professionals that graduated college within the last dozen years or get comfortable with the idea that technology will replace more people than the current advisor population might like to admit.

With aging advisors managing the majority of the sector’s wealth, and advisors over the age of 60 controlling $2.3 trillion of this wealth, serious concerns have been raised as to how industry veterans plan on transferring their books of business to future generations. The issue, however, is that future generations are not pursuing financial advisory careers.

According to Lisa Kidd Hunt, executive vice president at Charles Schwab & Co., “Less than 7% percent of college graduates coming out today are looking to pursue a career in financial services.” Moreover, for every eight advisors that retire, only three are trained to replace them. With no one on the other end of their succession plans, seasoned advisors cannot ensure the continuity of their businesses. There is a reason why some advisors say they’ll never retire…they can’t!

In addition to the aging advisor population and talent shortages, the financial services industry must contend with yet another issue: new customers. According to a study produced by the Boston College Center on Wealth & Philanthropy, it is estimated that by 2061, $36 trillion of wealth will be passed down to future generations.

While the industry braces for this intergenerational shift in wealth, it must first understand its new consumer – the millennial. Representing 24 percent of the population, millennials fall a bit far from the proverbial apple tree when it comes to their finances. Unlike the generations before them, millennials have adopted an independent view on investing, with 72 percent of them describing themselves as “self-directed.” Moreover, not only are these budding investors autonomous, they seem to have placed little trust in the industry. According to a report produced by Merrill Lynch, only 19 percent of millennials believe financial advisors act in their best interest.

Another important topic to note as it relates to millennials is how exactly they consume information, especially with regards to technology. Unlike their predecessors, younger millennials are  less likely to have contact with their financial advisors and instead prefer to access financial services online.  From WealthFront to Mint.com to eSurance, there are a host of financial information and money management services that have already captured the business of those in their twenties and thirties making their big financial decisions for the first time.

These websites raise an additional challenge for financial advisors in that the majority of them come at a cost that is a fraction of what traditional brick-and-mortar advice firms might charge.

Addressing millennials and their habits is a serious concern for financial advisors and at 77 million strong, not addressing this segment could present serious business risk.

Given the changes in the financial services landscape – graying advisors, talent shortages and new customers – advisors need to devise a plan to adapt. They need to rebrand their industry, refine and modernize their messaging, and ultimately, engage with the investing generations of the future. To this point, check out what United Capital just announced last week: United Capital Introduces FinLife.

Financial services firms are not sitting idly staring at this issue. There is plenty of evidence that engaging younger prospective clients and employees is a core focus for many. For some, the solution is to tout a new app or online tool. For others, finding a way to use SnapChat or Instagram to showcase the firm’s hip culture with recruits might be a tactic. Some have gone so far as to enable 30-year-old executives to lead recruitment or serve as lead spokespeople for their firms to put an age appropriate face on the firm.


Editor’s Note: This post is a collaboration between Joe and another member of the GregoryFCA team, Leah Katsanis.