Why Your Business Needs Millennial Advisors

Aug 15, 2017


If you caught my 4-part blog series this past May, then you know I’ve been hyper-focused on the millennial investor. Today I would like to change gears and focus on the millennial advisor—specifically, how our industry can work together to better engage the next generation of advisors. Because let’s be honest: while you already know (from your own personal experience) that being a financial advisor can be a fulfilling and rewarding career, that’s not exactly clear to the general public.

Why the bad rap?

For one, advisors get lumped in with the rest of the financial services industry – that unfortunately includes the 2008 banking crisis. Nearly 10 years later and this event still continues to haunt the perception of our industry. The media doesn’t always help either by focusing much of their attention on the negatives, such as fees, Ponzi schemes and regulatory changes. You rarely see positive stories – like how an advisor helped a couple ensure their special needs child was financially cared for after they’re gone, or how a planner helped a widow gain back control over her life and become financially independent.

Moreover, we as an industry have never done a great job of marketing this profession to demonstrate that your true value, as a financial advisor, goes way beyond just brokerage transactions and investment advice. The industry is evolving, but slowly—so the progress we’ve made is much less apparent to those outside our business. We’re starting to get there, but it’s going to take time to re-image financial planning as a professional career that’s able to attract, recruit, engage and retain young talent.

So we’re going to kick off another four-part blog series, except this time it’s all about the millennial advisors. Over the next few months, I’ll share specific research and findings we’ve developed on this topic. But before I get into the details and numbers, I want to start first with why I’m talking about millennials advisors and, frankly, why you should even care.

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The four key trends at force

1. Aging advisors with no succession plan.  According to Cerulli Associates, of the 118,000 advisors surveyed who are within 10 years of retirement, nearly 40% have no formal succession plan in place. As a business owner, if you don’t address this succession planning issue now, it’s likely something your clients will address it later when they ask you what happens to them if something happens to you.

Attracting young advisors to the industry is vital to provide you with a pool of candidates that could be your continuity plan. But once you have finally hired that young advisor – it doesn’t stop there. You must establish the right development and career track to foster young talent if you want to retain that advisor as your long-term potential successor. Our research tells us young advisors are interested in becoming business owners, but they need a reason to stick around.

Some keys to success in retaining the young advisors:

  • Cultivate them as a potential successor by treating them like a potential business owner.
  • Give them enough responsibility to test their management skills over time.
  • Allow them to take ownership over certain projects that contribute to firm-wide initiatives.
  • Ensure they’re aware that there’s long-term opportunity with the firm and that you’re actively thinking about succession.

2. Disruption caused by robo-advisors and the rise of technology. Traditionally, advisors have focused on the HNW baby boomers, which is a market that required a high-touch and super personalized service model. This has left a wide open opportunity for robo-advisors to zero in on lower-end investors and Gen X/Gen Y, as many advisors have struggled to adjust and tailor their business model to be able to profitably serve these other demographics and generations.

Our research tells us that young advisors have a high interest in incorporating technology into their business model. What better way for them to add value and contribute to your firm­, then by helping your own team innovate and drive efficiency? Consider using your millennial team member to lead the initiative, research technology vendors and help the team determine how to develop a more streamlined business using the new technology.

This will not only impact your individual business, but it can also help our industry. How? By moving us all collectively toward a more competitive “techno-advisor” business model — where human advisors use technology to make client interactions more streamlined and meaningful.

3. Transparency of fees and business models. In recent years, we’ve all observed the increased scrutiny on the brokerage and commission-based side of the advisory business, while the independent RIA and fee-based business model has continued to increase in popularity. Though the transition will take time, factors such as the DOL rule will work to quicken the pace.

The majority of the young advisors in our research currently work at wirehouses or BDs, but those who are interested in becoming business owners appear to be most attracted to the independent RIA business model. Organizations like XY Planning Network are trying to capitalize on this opportunity to serve this next generation of advisors. They have developed a community of fee-only RIAs, providing similar technology, practice management and compliance support as a BD, just without the brokerage platform.

As our industry attempts to recruit and engage young advisors, we will need to develop similar capabilities tailored specifically to supporting the RIA business model. Even if your business is not an RIA, a young advisor could still add value to your team by helping you manage the ever-changing regulatory environment, like the DOL rule. If you treat them like a potential future business owner, they’re incentivized to stick around to help you develop a business that’ll sustain over the long term.

4. The rise of Gen X/Gen Y investors. For business valuation and continuity purposes, it’s important to have mix of clients of all ages—not just aging investors who are now distributing assets. You also need younger investors with accumulating and growing assets. However, traditional advisory firms do not appear to be prepared to serve young investors using their current business model (typically geared toward older, HNW investors).

In order to broaden your client base, most of you will need to alter your current planning process and fee model to accommodate the needs of these younger generations. Some firms might even go so far as to consider developing a whole new business line specifically geared to this next generation of younger investors. This presents another great opportunity to leverage young talent, because much of our research showed us that young advisors are demonstrating a lot of interest in serving younger investors. Since many of these younger investors are their peers, young advisors could bring a unique perspective on how your firm can engage and connect with this new type of clientele.

The big picture (and the small one too)

These four trends are indicators to me that it’s so important (now more than ever) that we focus our time and attention on fostering the next generation of millennial advisors. At a micro-level, this is so important for developing a long-lasting and sustainable business. At a macro-level though, we (as financial professionals) should want to set-up our industry for long-term success. Join me over the next few months as I bring the valuable findings from our research that just might enable us all to address this issue.

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Missy Pohlig

Missy Pohlig

Missy Pohlig is the millennial contributor for Practically Speaking and also serves as Program Manager for the Solutions Team in the SEI Advisor Network.

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