A Potential Crisis Lurking in the Coming Generational Wealth Transfer

by Ryan W. Smith
There will be a moment within the next few years where wealth transferences between generations will reach its zenith. Opportunities for financial advisors will almost never be better, with more clients and available assets-under-management (AUM) than ever. However, there is a very under-discussed phenomenon that will be occurring at roughly the same time and will have an out-sized impact on this generational wealth transfer.
Will there be enough financial advisors?
The average age of financial advisors is about 59 years old, according to several studies and a report from Hartford Funds in late 2016. This means that a large number of advisors will be retiring within the next 5-10 years, leaving a potentially much smaller pool of advisors.
This could pose a significant problem dealing with the approximately $30 trillion that will eventually be transferred from the Baby Boomer generation to their beneficiaries.
There are many researchers, companies and industry groups looking at the collision course of the declining numbers of advisors and huge increase in the amount of potential business and asking that very same question: Will there be enough financial advisors?
Recommendations made by researchers, companies and the industry vary in both composition and potential effectiveness, but nearly everyone is in agreement that the financial industry needs to proactively do a better job of recruiting, and retaining, millennial-age advisors. Past that agreement, however, many tips or recommendations appear to look more at specific issues than the industry overall.
There are some observations that do seem to create a starting point for discussing how to get millennial into the financial advisory industry. Here are some of those potential discussion points:
1) Millennials don’t want to be called Millennials
Census data and most researchers now agree that the single largest demographic in the U.S. right now is the Millennials, typically referring to anyone born between 1982 and 2002. Compounding the difficulty in researching and analyzing the Millennials, there is disagreement over the exact date range with some arguing for a 1984-2004 range while others say it began in the late 1970s.
This divergence of exact timelines is actually one of the biggest strikes against the name Millennial in the first place. Originally, some researchers and members of the media began referring to a “Generation Y” for the children born after the more defined Generation X which typically refers to anyone born 1965-1984, according to the Harvard Center. As children of this generation grew older and the astonishing size of their group became apparent, the Generation Y moniker was dropped in the media and by researchers to avoid any confusion with Generation X.
This is important to note in this context because what seems to have occurred is that many people born in the Millennial generation first heard themselves referred to as Generation Y when they were children only to have the name changed by the time they grew older. It turns out that many appear to resent the label Millennials being declared for them without input. Many members of the generation also say that many researchers, members of the media and even some advertisers use in an exceedingly negative fashion, which further disenfranchises them towards the Millennial moniker.
It becomes necessary, then, for potential employers looking to attract talent from this age group to avoid labeling the group as a whole, which many members of the generation view as derogatory. It is a better use of recruiting resources to look at specific talents and skillsets, personal commitment and personality when hiring new talent. In other words, use the same hiring practices that have always worked: find the best people.
2) When recruiting younger advisors stress the firm’s mission
One thing that appears to be of great importance for many in this younger generation is retaining a positive attribution in all things. That is, there is an underlying altruism that has taken hold of this generation and they prefer to seek out those positions where they feel that they have “done some good.”
Most successful firms’ welcome this attitude. However, that is not always readily apparent during the recruitment process which can quickly become more about numbers and charts than thoughts and feelings. To rinse the wishy-washy taste of that last sentence, consider that any successful sales process is centered around getting a potential client to feel good enough in trusting their advisor with their financial future.
Thoughts and feelings are as important in the financial industry as numbers and charts.
If a firm can show its recruits that they also care about their clients, during the good times when things are easy but also during times of crisis, especially when things look bleakest, that will go a long way. This practice has typically began with a statement like “Since 19XX, we’ve strived to put our clients first.” The youngest generation of workers wants their company to do more than speak platitudes, they want to be shown concrete results.
Just like their clients will want to see.
3) Mentorships are a lifeline
The youngest generation does not like to be labelled and they definitely want their employers to be socially conscious, but to an even greater degree this generation has shown in study after study that they really to want to learn. Aside from being the generation with the highest percentage of college graduates, many members of this youngest generation realize that learning is a lifetime achievement, not only a youthful one.
To satisfy this hunger for knowledge, to make sure that positive practices are learned early and implemented consistently and to fill in educational gaps laid bare by the minimal requirements of economics and finance in most collegiate programs, a mentorship program should be implemented. A strong mentor program can help firms in nearly all aspects of recruiting and training.
Mentors, utilizing tools like AdvisoryWorld’s SCANalytics program, can show their junior colleagues portfolios using any combination of assets so that the new recruits can better see how variations in allocation, invest strategy, fees, returns and cash flows can all impact portfolios. Understanding the various MPT, Market Portfolio Theory, statistics and how to read investment charts and an asset prospectus will also help these new team members learn a firms’ best practices and help provide a greater understanding of the “historical memory” of the financial markets, a must for any successful financial advisor. Mentors have the ability to customize knowledge centers for all recruits, so that each new advisor can be sure to learn all that is necessary no matter their initial knowledge base.
Many firms currently have a mentor program established. However, many miss out on the biggest benefits offered through mentoring by having junior team members, or even those who just completed training mentor the newest incoming recruits. This tactic is sure to only reinforce any bad habits incurred on the part of the recent trainees who have yet to learn the “historical knowledge” of the industry or the “best practices” of the firm that can only come from experience.
Along with many mentoring programs, a career track can be of great benefit. A clear pathway with expectations and guidelines laid out is one thing that most research on the youngest generation of workers has consistently shown since this group was in high school. A strong mentoring program can help synergize a career pathway with best practices, a robust financial education and consistency in sales techniques. Those who meet the guideposts move forward, the rest continue their mentoring program.
The looming crisis apparent in looking at the large numbers of financial advisors who are nearing retirement, the avalanche of generational wealth about to be transferred and the abundance of available recruits in the youngest generation of employees presents a monumental opportunity for firms. Those firms that can recruit and train young advisors, utilize tools like AdvisoryWorld’s SCANalytics program to help fill in educational gaps, and begin mentoring programs utilizing the knowledge and experience of senior advisors to ensure the continuance of best practices will be the firms that have the best chance to succeed in this generational shift that is already underway.