Empty Pipeline: Financial advisory firms struggle to attract young talent as industry veterans retire

Holly Gallagher started looking to add an adviser to her small financial planning firm about six years ago. She finally found one earlier this year.

Gallagher

“It hasn’t been easy,” said Gallagher, founder and president of Horizon Financial in Traverse City. “First, you need to be clear about what kind of adviser you are looking for – a rainmaker or a support adviser.

“Finally – and perhaps most importantly – there has to be a cultural fit.”

It didn’t help that there is a nationwide shortage of advisers to choose from. It’s not a new problem, but it’s worsened in recent years as the demand for financial services has grown while fewer young people are interested entering the business.

“I’ve got three kids and none of them want to go into the industry,” said Jay Berger, partner at Independent Wealth Management in Traverse City.

The 60-year-old Berger says he loves what he does and has no retirement plans. But he said he and his similar-age partners often think about succession issues at a time when younger people are not clamoring to enter the industry.

“It’s something we talk about internally a lot,” he said.

About 40% of financial advisers plan to retire by the end of this decade, according to a 2019 survey by Cerulli Associates, which has also predicted a steady decline in the number of advisers through at least 2024.

Berger

At the same time, Baby Boomers born between 1946 and 1964 are rapidly retiring and looking for advisers to help them manage their collective enormous wealth and transfer it to their heirs. Boomers control 53% of the nation’s household net worth, according to recent Federal Reserve data.

It’s a similar situation in the Grand Traverse region, which has become a magnet for well-heeled retirees and those nearing retirement. Rural Leelanau County, for example, had a medium household income of $65,249 in 2019, the sixth highest in Michigan.

And young workers, who lack the traditional pensions many of their parents enjoyed and fear Social Security will be bankrupt by the time they retire, are seeking out financial advisers to help them navigate an increasingly complex personal finance environment.

Local financial planning executives cite a number of reasons for the shortage of advisers, including barriers to entry, dissatisfaction with salary and benefit structures, and the industry’s not-so-sexy image.

Kilbourne

“It just seems young people just aren’t excited about it,” said Kirt Kilbourne, Traverse City branch manager at Wedbush Securities. “They’d rather work at Tesla, Apple or a hedge fund someplace.”

Some say the COVID pandemic, which has accelerated income inequality, also may be turning off socially conscious young adults who are deciding on career paths.

For example, Amazon founder Jeff Bezos, whom Forbes crowned as the world’s wealthiest person this year, saw his net worth jump 57% to $177 billion in 2021 from $113 billion in 2020.

Forbes said there are a record 2,755 billionaires in the world, 655 more than last year.

“I think somehow it’s been turned around that making money is bad,” Berger said.

Many young people also find the pay and benefit structure in financial advisory firms unappealing. It’s an industry in which advisers are typically paid only commissions and must pay for their own benefits and expenses.

“Today, senior management or the senior adviser on a team needs to realize that the new adviser is going to want a salary and benefits,” Gallagher said. “We have to change our paradigm.”

Lori Oancea, director of Oakland University’s executive certified financial planner program, agreed.

“It’s just not attractive for young people to start out in a commission-only business,” said Oancea, who also is a lawyer and financial adviser. “It’s an eat-what-you-kill model. That’s intimidating for young people.”

Kilbourne agreed it’s a tough industry for young people to break into without having any existing clients.

“It’s a hard business to get into just starting out cold,” he said. “The best way is to partner with an existing team in an office. We’re fortunate that we have two younger fellows who were able to team up with their fathers,” who are advisers in Wedbush’s Traverse City office.

Dealing with more sophisticated technology, new financial products and more frequent,  personalized client contact can scare off some considering a career in the industry.

“The industry has become more complex; it’s not really about sales or products anymore,” Gallagher said. “It’s hard work. The upside is so appealing, but the downside is not for most.”

The financial advisory industry, dominated by older white men, also is having a hard time attracting women, people of color and LGBT people. That limits the recruiting field.

“I’ve been in the industry nearly 30 years and it has generally been a male-dominated industry,” Gallagher said.

Nationally, just 4% of certified financial planners are Black or Hispanic and just 23% of CFPs are women, according to a 2019 CFP Board report.

Experts say an increasingly diverse U.S. population demands that the financial advisory industry better reflect that diversity to retain and attract new clients.

Universities are adding CFP degree programs, which financial advisory firms hope will attract more young people to the industry. Among them are Michigan State University, Western Michigan University and Eastern Michigan University, Oancea said.

A CFP must possess a bachelor’s degree, have up to 3,000 hours of experience and pass a rigorous national exam.

Once they’re established in the business, although it’s not an easy process, Kilbourne said young people can achieve a financially and personally rewarding career.

“You see clients retire. You guide them along,” he said. “That’s a neat feeling.”

 

Comments

comments