Journal of Financial Planning: March 2024
Paul Saganey, CFP®, is president and founder of Integrated Partners (https://integrated-partners.com/). He is the co-author of Optimizing the Financial Lives of Clients: Harness the Power of an Accounting Firm’s Elite Wealth Management Practice.
It’s no secret that the financial advice industry is graying. In fact, J.D. Power’s 2023 U.S. Financial Adviser Satisfaction Study highlights that the average age of an American financial adviser is 56 years old. Is this an opportunity or concern, you may be asking yourself?
Well, the aforementioned study goes on to note that 20 percent of advisers surveyed indicated that they are within five years of retiring—with nearly 30 percent of independent advisers claiming that they “probably will” stay at their current firm over the next two years, as opposed to stating that they “definitely will.” This suggests further adviser attrition, which could negatively impact practices and potentially create a shortage of advisers over time.
As older advisers devise succession plans to exit the industry, a window is opening for so-called G2, or next-generation, advisers. However, the influx of these younger advisers only marginally offsets retirements and trainee attrition, as highlighted in the June 2023 Cerulli Edge U.S. Asset and Wealth Management Edition. As more experienced talent continues to leave the industry, firms need to focus on ensuring that G2 planners are set up to succeed. However, Cerulli’s report notes that nearly half (45 percent) of new advisers primarily manage small-balance accounts for senior advisers. This situation could impede their professional growth in the industry if they remain in supportive roles for an extended period without the opportunity to showcase their varied talents.
Historically, RIAs and broker–dealers have added talent to their practices by enticing seasoned advisers who are dissatisfied in their current roles. Now, as G2 advisers step in to fill the void created by departures, there is a clarion call to pivot toward fostering the growth and development of these emerging advisers. Here are three crucial elements, recommended by industry study groups, that every next-gen planner should consider as they embark on their journey as financial advisers.
Vision: What Type of Client Do You Ultimately Want to Work With?
It’s imperative that next-generation professionals proactively define their target client base to set the stage for a successful and rewarding career. This could be high-net-worth (HNW) or ultra-high-net-worth (UHNW) individuals, clients navigating business successions, or those in need of estate planning. A well-defined vision and target market serves as the foundation for a fulfilling career trajectory.
In the pursuit of this vision, one effective strategy for navigating the industry’s complexities is to create a personal board of advisers. This assembly of experienced professionals, comprising friends, family, and their professional networks, aims to provide guidance and support as G2 advisers launch their careers. Unlike a traditional mentorship, the personal board of advisers is more like a high-touch concierge service, offering counsel without being a constant, potentially limiting, presence. For instance, seeking advice from estate planning attorneys when specializing in that area can be instrumental in making a well-informed career decision. This aligns the advisory board with the overarching vision, fostering a supportive network that nurtures the adviser’s growth.
Another critical piece of advice for emerging advisers is encapsulated in the wisdom of patience. Our modern, digital world often entices with shiny new opportunities; it is paramount for next-gen advisers to resist the urge to chase every flashier opportunity that arises. Establishing a defined career vision or path should serve as a guiding principle, allowing for thoughtful decision-making to avoid the pitfalls of hasty pursuits. That “stick to it and persevere” mentality is best embodied by the old Avis commercial (Stevenson 2013), which cleverly acknowledged that the auto rental company was “second” to market leader Hertz—thus they “tried harder” when it came to customer service. Next-generation advisers should embody that spirit of hunger, grit, and determination. Outperforming established counterparts requires technical expertise and a commitment to hard work. Through continuous effort and dedication, emerging advisers can position themselves as stalwarts in the industry over time, with their firms and clients taking note as they advance in their career. Act as if you have a chip on your shoulder and are “No. 2” like Avis, and of course “try harder!”
In this same vein, young advisers should resist external limitations that others tend to place on junior members’ career visions. As next-gen advisers forge their path, it is essential not to let others dictate the scope of their aspirations. By maintaining a steadfast commitment to their vision, they can navigate their careers with purpose and resilience. For example, rather than fixating on knowing the ins and outs of every technical financial product or solution, next-gen advisers can excel by asking thought-provoking questions of their clients. This approach can enhance client interaction and rapport, while also fostering a deeper understanding of each client’s unique needs, without the pressure of having to know all of the answers. Learn to be great at thought-provoking questions and the answers will come later.
Above all, younger advisers should recognize that their journey doesn’t have to conform to a standard senior/junior adviser relationship or mentorship. Leveraging their personal board of advisers, they can identify pertinent individuals from the board who support that vision. When transitioning from junior to senior adviser, the key lies in aligning each step with the overarching vision, ensuring a purposeful and fulfilling career trajectory.
Capabilities: What Are Your Core Competencies and Who Can You Form Partnerships or Collaborate with to Round Out Your Practice?
Once a next-gen planner determines the vision for their practice, preferably with the help of a mentor and their personal board of advisers, it then behooves them to identify the core financial planning competencies they’ll need to master, specifically those that are aligned with their envisioned practice. Consider the case of a young financial adviser who recognizes that their preferred specialty lies in working with clients who are selling a business. To actualize their vision of becoming a competent, trusted planner for this niche, which they selected during the vision process, it’s important that they hone capabilities specific to owners exiting their businesses. This may also entail outworking peers via meticulous preparation, paying greater attention to detail, asking thought provoking questions, and utilizing effective meeting management skills.
In the pursuit of these competencies, embracing a collaborative ethos acknowledges that one’s individual capabilities might be enhanced by the collective expertise of a team. This could involve leveraging the specialized skills of colleagues within their firm or forming external partnerships to supplement their competencies. Such a strategy, akin to being a conductor, ensures a comprehensive approach to client advice, where orchestrating a multidisciplinary ensemble can significantly enhance the quality of service and elevate the client experience.
As part of this collaborative approach, next-gen planners should, when applicable, seek to embrace centers of influence outside of their purview, including tax experts, estate planners, or trust officers. These professionals can serve as pillars in sustaining organic growth, offering invaluable insights and expanding the scope of financial planning beyond traditional boundaries. The emphasis here is on hyper-collaboration, forming circles of high-quality professionals who, when woven together, create a tapestry of expertise that far surpasses individual capacities. For the next generation, this involves not only acquiring technical expertise but also cultivating a collaborative mindset that extends to all facets of financial planning. It can help young advisers transcend the limitations of inexperience to carve out a niche where their vision aligns seamlessly with the competencies needed to thrive.
Reach: How Do You Access Your Desired Clientele?
For our purposes, “reach” simply means the range of target clients to which the next-gen adviser has access, including the ability to tap friends, family, associates, and their personal board for connections with potential clients outside of their immediate network. Establishing and organically growing a client base can be the most challenging aspect of an emerging adviser’s career. Let’s suppose that a next-gen adviser is interested in serving professional athletes but lacks access to this niche. In such instances, they might leverage personal connections, including peers, to open doors. These trusted networks can serve as ready-made markets or networks, giving the adviser an initial foothold in that industry.
Alternatively, if these connections are limited, the role of a mentor becomes crucial. They can offer invaluable insights and may help expand the next-gen adviser’s reach by transferring clients that are no longer a fit for their practice. Further, a trusted personal adviser can play an important role in helping emerging advisers gauge the extent of their professional reach and identify areas for expansion. This guidance is part of a broader strategy that includes continuous education, yet another pillar in the quest to gain access to desired clientele. Aspiring advisers should immerse themselves in literature and insights from successful industry figures, focusing not only on their triumphs but more importantly on the mistakes that shaped their journeys. This type of informed learning process not only helps refine their capabilities but also ensures they are equipped to adapt to the dynamic needs of their target audience and broaden their reach.
The Discipline of a Future-Ready, Next-Gen Adviser
The mandate for next-generation planners is clear: empower your future by meticulously assessing three critical considerations—vision, capabilities, and reach. Much as the great wealth transfer is shifting billions of dollars in assets to younger generations (Wines 2023), this cohort is also experiencing a similarly transformative opportunity when it comes to careers as a G2 adviser. As older financial advisers head for the exits, there is a significant opportunity for emerging advisers to assume important roles in the wake of these transitions.
To ensure the continued success of the industry, particularly as seasoned talent departs, a strategic focus on the growth and development of the next generation of advisers and financial planners becomes paramount. The journey for next-gen planners begins with establishing a vision and defining the type of client they wish to serve. Following this, an honest and thorough appraisal of their own skills is necessary to verify their ability to cater to their selected investor cohort. Lastly, reaching those targeted clients will involve exploring their network, including family, friends, professional acquaintances, and their personal board of advisers.
It has never been clearer that the next generation of financial advisers holds the key to shaping the industry’s future. By remaining disciplined, these G2 advisers can empower their futures and ensure a resilient and purposeful career trajectory.
References
Cerulli Associates. 2023, June 26. “Rookie Advisors Are in Short Supply.” The Cerulli Edge—U.S. Asset and Wealth Management Edition. www.cerulli.com/press-releases/rookie-advisors-are-in-short-supply.
J.D. Power. 2023, July 5. “Time-Starved U.S. Financial Advisors Considering Alternative Options, J.D. Power Finds.” www.jdpower.com/business/press-releases/2023-us-financial-advisor-satisfaction-study.
Stevenson, Seth. 2013, August 12. “We’re No. 2! We’re No. 2!” Slate. https://slate.com/business/2013/08/hertz-vs-avis-advertising-wars-how-an-ad-firm-made-a-virtue-out-of-second-place.html.
Wines, Jennifer. 2023, December 5. “How Might the Great Wealth Transfer Change Society?” Kiplinger. www.kiplinger.com/retirement/how-might-the-great-wealth-transfer-change-society.