The Great Resignation impacted all businesses, including financial services. A huge loss of talent is underway which can often be difficult to overcome. Over the next decade, another exodus will hit the finance industry, and it’s one that may be particularly difficult to recover from: the gray resignation.
Although registered investment advisers aren’t as old as they once were, 52 in 2015 to 49 in 2019, the average age of financial advisors is increasing globally. A JD Power report pegs the average at 57 years oldcompared to 54 in 2020. In fact, 43% of advisers are 55 or older. And among those aged 51 to 55, 38% plan to retire in the next 10 years.
The question then becomes, why is there such a shortage of young financial advisors?
Part of the problem is the stigma surrounding financial services. With the possible exception of an app or two, the industry has been slow to adopt the technology consumers have grown accustomed to. For consulting firms, it is important to combine the best of fintech with the best of human advice. However, technology alone is not the answer.
Consulting firms, on the whole, have not done enough to build relationships with colleges, universities, and trade schools to recruit future graduates. Companies also have rather narrow ideas about the skills of ideal recruits. Candidates need to tick certain boxes for consulting firms to even schedule interviews.
Compensating for the shortage of financial advisors
Consumer expectations being what they are, clients will begin to migrate from your consulting firm to another if this issue is not addressed head-on. They will worry as their advisors get older. This is especially important if your business aims to manage the financial services of families, generation after generation.
Now is the time to consider the new future of your firm with the loss not only of senior advisors, but also of the wisdom and experience that will be forgotten when they retire. Fortunately, there are steps you can take now to prepare for the shortage of financial advisors.
1. Rethink your talent acquisition methods.
Building a future-ready business has many components. Culture is often a distinguishing factor, as well as a defined purpose and a means of creating value. However, the foundation of all businesses will be talent and talent acquisition strategies. So plan ahead. Start thinking about your talent needs now before the gray resignation hits full force. What roles will need to be filled? Who will fill them? How do you plan to attract talent?
You may need to rethink not only your recruiting methods, but also the attributes of ideal candidates. Perhaps mid-career advisors in related industries could help fill the experience gap and overcome the shortage of financial advisors. Investment specialists, property and casualty insurance brokers, and CPAs are all viable options. Tapping into a larger pool of candidates can strengthen the talent ecosystem.
2. Establish clear advancement opportunities.
Companies often focus on rewarding and maximizing potential employee earnings when trying to improve both retention and acquisition. While important, it could come back to haunt you in difficult market environments. Instead, think about how to create sustainable career paths for employees so you can afford them during tough times. Create a timeline for advancement opportunities, even those that aren’t linear. It will provide an opportunity for long-term growth.
3. Invest in training and development.
Training and development have always been essential. Formal programs can improve productivity, build engagement, build capacity, and do wonders for employee retention. However, you must be intentional in your efforts if you hope to recruit new graduates or professionals from related industries and equip them with the skills to succeed and fill talent gaps. Keep investing in development and find a way to train recruits faster and more efficiently.
4. Institute succession plans.
Although it goes without saying, succession planning is not just for business owner clients. Advisors should do the same. However, only 27% of advisors have formal succession plans. If aging financial advisors haven’t yet developed one, companies should take it upon themselves and establish succession plans to ensure that key positions never sit vacant for too long.
Most importantly, good succession planning allows time for knowledge transfer between new hires and seasoned employees. The dissemination of information, methodologies, ideas and other critical details will not happen overnight. Start thinking about who in your organization can take the lead as they prepare for retirement.
5. Consider a mergers and acquisitions strategy.
Although a little more expensive than other tactics, an M&A strategy could be a viable option for your advisory firm to deal with an ongoing shortage of financial advisors. There is a caveat, though: you need to understand what you’re getting into with a merger or acquisition. Is the other company mostly made up of aging financial advisors? Is there a good mix of professionals? The last thing you want is for a strategy to cause even more recruiting problems in the near future.
The average age of financial advisors is increasing. There’s not much you can do about it. But you can take the necessary steps to prepare for the potential of a shortage of financial advisors by refocusing on talent acquisition and retention. Reconsider your definition of the ideal candidate, start forging inroads with local colleges and universities, and ensure your consulting firm is an attractive option for talent by investing in career development and employee advancement.
The only hurdle right now is whether you view the lack of talent as a pressing issue. If not, trust the competition and engage with the best and brightest potential recruits already.
Chris Kerckoff is President and Chief Executive Officer of Plancorp, a full-service wealth management firm serving businesses and families in 44 states and managing $6 billion in assets under management in 2021.