The Great Resignation has been impacting all businesses—financial services included. A huge loss of talent is taking place that can often be difficult to overcome. Over the next decade, another exodus will hit the finance industry, and it’s one that could be especially problematic to recover from: the Gray Resignation.
Though registered investment advisors aren’t as old as they once were, going from 52 in 2015 to 49 in 2019, the average age of financial advisors is rising overall. A report by J.D. Power sets the average at 57 years old, up from 54 in 2020. In fact, 43% of advisors are 55 years of age or older. And of those between the ages of 51 to 55, 38% have plans to retire in the next 10 years.
The question then is, why is there such a shortage of young financial advisors?
Part of the problem is the stigma around financial services. With the exception of maybe an app or two, the industry has been slow to adopt technology consumers have grown accustomed to. For advisory firms, it’s important to marry the best in fintech with the best in human advice. However, technology alone isn’t the answer.
Advisory firms, by and large, haven’t done enough to broker relationships with colleges, universities and business schools to recruit upcoming graduates. Firms also have fairly narrow ideas of the skill sets of ideal recruits. Candidates must check certain boxes for advisory firms to even schedule interviews.
Compensating for the Shortage of Financial Advisors
Consumer expectations being what they are, clients will start migrating from your advisory firm to another if this problem isn’t met head-on. They will grow concerned as their advisors’ age. This is particularly important if your firm has a goal of handling the financial services of families, generation after generation.
The time is now to envision the new future of your firm with the loss of not only senior advisors, but also the wisdom and experience that will be forgotten as they retire. Fortunately, there are steps you can implement now to prepare for the shortage of financial advisors.
1. Rethink Your Talent Acquisition Methods.
Building a future-ready firm entails many components. Culture is often a distinguishing factor, as is a defined purpose and a means for creating value. However, the bedrock 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. Which roles will need to be filled? Who will fill them? How do you plan to attract talent?
You might need to reimagine not only your recruiting methods, but also the attributes of ideal candidates. Perhaps midcareer advisors in related industries could help fill the experience gap and overcome the financial advisor shortage. Investment specialists, property and casualty brokers, and CPAs are all viable options. Tapping into a larger pool of candidates can strengthen the talent ecosystem.
2. Establish Clear Advancement Opportunities.
Firms often focus on compensation and maximizing potential earnings for employees when trying to improve both retention and acquisition. Although important, this could come back to haunt you during challenging market environments. Instead, think about how to build durable career paths for employees so you can afford them during tough times. Create a timeline for advancement opportunities—even nonlinear ones. It will provide the opportunity for growth over the long term.
3. Invest in Training and Development.
Training and development have always been essential. Formal programs can improve productivity, enhance engagement, develop capabilities and do wonders for employee retention. However, you must be intentional with your efforts if you hope to take new graduates or professionals from related industries and equip them with the skills needed to succeed and fill talent gaps. Continue to invest in development and arrive at a means for training recruits faster and more efficiently.
4. Institute Succession Plans.
Though this should go without saying, succession planning isn’t just for business owner clients. Advisors should be doing the same. However, only 27% of advisors have formal succession plans. If aging financial advisors have yet to develop one, firms should take it upon themselves and establish succession plans to ensure key roles never remain open for too long.
More importantly, proper succession planning offers the time necessary for knowledge transfer between newer hires and seasoned employees. Disseminating information, methodologies, insights and other critical details won’t happen overnight. Start thinking about who within your organization can take up the helm for those readying for retirement.
5. Consider a Mergers and Acquisitions Strategy.
Although a bit more onerous than other tactics, an M&A strategy could be a viable option for your advisory firm to weather a continued shortage of financial advisors. There is one caveat, however: You must understand what you’re getting into with a merger or acquisition. Is the other firm predominantly staffed with aging financial advisors? Is there a good mix of professionals? The last thing you want is for a strategy to cause even more recruitment troubles in the near future.
The average age of financial advisors is rising. There’s not much you can do about that. But you can take the necessary steps to prepare for the potential of a financial advisor shortage by taking up a renewed focus on talent acquisition and retention. Reconsider your definition of the ideal candidate, start forging inroads with local colleges and universities, and ensure your advisory firm is an attractive option for talent by investing in employees’ career development and advancement.
The only barrier right now is whether you consider the lack of talent an urgent matter. If you don’t, trust that the competition does and is already engaging with the best and brightest of potential recruits.
Chris Kerckhoff is president and CEO of Plancorp, a full-service wealth management company serving companies and families in 44 states and managing $6 billion AUM in 2021.