It is often noted that the average age of advisors in the US and other parts of the world is rising, and yet there is - so everyone says - a big inter-generational wealth transfer in play. What should and could firms do to improve recruitment and keep abreast of demographic and cultural changes?

(An earlier version of this news service appeared on Family Wealth Report, sister news service to this one. The themes are global, so we hope readers find this useful.)

More than 111,500 wealth advisors will leave the industry in the next decade, equivalent to a third of the total headcount, raising the need for the sector to hire from more diverse backgrounds than the traditional white, male-dominated base.

With the average age of advisors creeping up into the 50s and the sector bracing for a $30 trillion inter-generational asset transfer, there is a need to ensure that the sector keeps pace with its people. 

“In order to broaden their addressable market for new advisors and mitigate succession concerns, firms will need to revamp recruiting and training programmes and intentionally prioritise retention—removing barriers that disproportionately affect diverse candidates,” Marina Shtyrkov, research analyst at Cerulli Associates, said in a new report by her firm. 

The report, The Cerulli Edge - US Advisor Edition, 1Q 2020 Issue, said that among the advisors retiring in the next decade, 22 per cent are not sure about their succession plan.

For years, wealth managers have wrestled with how to find new advisors, either by developing in-house talent or recruiting from banks, asset managers and other institutions. There is even a theme of former military personnel, to given an example, forging careers as wealth managers. 

Some firms are trying to expand recruitment beyond traditional areas. RBC Wealth Management-US, for example, is telling stories by video of how it is widening the range of people who join the industry, following its move last year to expand its net in the war for talent. RBC has revamped its Associate Financial Advisor training programme to allow more “diverse” candidates – from inside and outside the financial services industry – to join the firm and follow a career in the sector. A person who may have had a career in a sector entirely unconnected to financial services can enrol. UBS, Merrill Lynch and Abbot Downing, to give other examples, have told this news service how they are widening the talent pool. 

At stake is not just keeping up with demographic shifts, but ensuring that there is sufficient diversity of opinions and approaches, as well as diversity in terms of race and gender, for example. Arguably one of the greatest dangers – as perhaps proven by the 2008 financial crash – is what can happen when a form of “groupthink” takes hold in banking and finance. This can happen if wealth managers have similar educational backgrounds, life experiences and viewpoints.

Drag factors
One force that deters people from entering the sector is its reputation – not always deserved – for a heavy sales-driven culture and performance-based compensation model. That perception remains even though the industry is moving towards a more financial planning-led model, Cerulli said.

The report noted that to increase awareness, combat misconceptions, and promote this career path, some broker/dealers are partnering with non-profits, schools/universities, and industry organizations to spread the message (such as financial literacy programs, professional women’s networks).

“Once candidates become advisors, rookies are often expected to harvest leads from their own network to build a client base, which proves disadvantageous to those from less affluent socioeconomic backgrounds. In addition, inadequate mentoring, exclusive or unwelcoming firm cultures, limited training support, inconsistent/variable compensation, and numerous other factors drive the high failure rate for all rookie advisors and often disproportionately impact diverse rookies,” the report continued. 

While some firms are very publicly striving for increased gender parity, it has been difficult to move the needle, and diversity rates remain “staggeringly low”, the report continued.

“Changing human behaviour and biases is a tremendous undertaking; it has taken decades to develop current perceptions and behaviours, and it may take decades to unwind them,” Cerulli’s Shtyrkov said. “In order to create meaningful, lasting change, firms must be willing to make significant modifications to compensation, recruiting strategies, training programmes, and leadership.”