The financial planning industry needs 70,000 new advisors over the next five years just to keep up with the growth in the number of people seeking advice on everything from home buying to retirement. And this figure, which comes from a recent study by Schwab on RIAs and recruitment, does not take into account the additional planners needed to replace those retiring or leaving for other industries. Over the next 10 years, Cerulli Associates estimates that 37% of advisers collectively controlling 40% of industry assets will exit the workforce.
This all adds up to the need for a lot of new planners. Every industry’s workforce is subject to the law of supply and demand, and wealth management is no exception. But while planners want to be well paid, with good benefits, an engaging work environment and a clear path to advancement, they also have specific demands – and in a competitive hiring environment, they increasingly have the power to get what they want.
Access to privileged customer accounts and solid compensation are important, but they are not the only ways to win over employees. Sabbatical programs, mentoring, strong career paths, and college and university partnership programs all help RIA find smart, interested potential employees.
“Think about the employee value proposition,” said Lisa Salvi, head of business consulting and education at Charles Schwab in San Francisco. “What do you expect from employees and what are you ready to give back? The answers, she added, will help determine who can hire and retain the growing ranks of workers the planning industry must find.
Large traditional employers are no longer in vogue
Recruiters once worked for advisers to fill jobs in Wall Street fulfillment centers. Now advisors are more interested in moving from big banks and corporations to smaller, more independent companies.
“There’s been a shift toward people wanting to work at regional companies and independent consulting firms,” said Michael Terrana, resident of Terrana Group, a Chicago-based recruiting and transition consulting firm. “We haven’t had a recruitment deal for a big bank-owned company in six to eight years. Instead, we source from them. Sometimes advisors go from a wire company to each other, but not in the same masses that they leave the wires and become independent.”
Better technology and less red tape are helping to drive change. “The independent broker-dealer model offers best-in-class technology, more reasonable compliance, and ownership of the books,” Terrana said.
But money remains the main driving force. Planners want to be compensated for their business volumes, whether they are joining a new business or retiring.
“A large bank-owned company will pay me once for my book earnings,” Terrana said. “But if I switch to an independent broker model, I’ll probably get two to four times more income and preferential tax treatment because I qualify for capital gains treatment rather than being taxed on ordinary income. If I get paid to leave a big bank and then get paid again when I sell my business, that’s a huge incentive.”
Private equity is also popular
Private equity firms are increasingly buying stakes in consulting firms or entire companies, sometimes bundling them into larger companies. Contrary to their attitude toward big banks, “planners want to work for these big companies,” Terrana said.
Private equity firms pay between five and six times the book value of the planners they hire.
“Normally you could get three to four times the book value,” Terrana said. “You might get one and a half to twice as much if the buyer is owned by a private equity firm.”
Advisors want to work remotely
One of the reasons some advisors prefer smaller companies is that they are more likely to offer flexible working arrangements.
“Some of the big, bank-owned companies would like to see advisers in the office at least half the time,” Terrana said. “Small businesses are not so concerned.”
Many companies have been more or less forced to let employees work from home during the worst of the COVID-19 pandemic, and overall the experiment has been successful, with advisors demonstrating they can run their business efficiently. in almost all contexts. The willingness of small businesses to let them continue to do just that makes them attractive employers.
On another front, changing customer expectations have made working from home more acceptable and being transparent about family obligations, such as childcare. Many clients, especially younger ones, don’t want face-to-face meetings with their financial advisors, said Andrew Tasnady, managing partner of Tasnady Associates in Port Washington, New York. They actively favor telephone or Zoom meetings.
“People prefer not to commute, and that desire has become much less controversial,” Tasnady said.
The rising team model
Another factor giving advisors flexibility is the growing popularity of team service models, in which two or more advisors share a portfolio of clients. The team may include a junior member or people with otherwise complementary skills, such as an advisor who is stronger at bond analysis or one who connects more naturally with younger clients.
Diversity is important
All other things being equal, companies seem eager to hire minority women and planners, and they are taking various steps to do so.
Some companies are moving away from recruiting bonuses for existing employees who refer new hires, Schwab’s Salvi said. This is because they fear that existing white male employees, who dominate the profession, will help them find more of the same. Only 1.8% of all certified financial planners are black2.7% are Hispanic and 23.4% are female, according to the CFP Board.
Other companies have more flexible production and asset requirements for certain applicants. Tasnady said he’s seen a major company adjust the probationary period to be more lenient, reducing the rate at which new hires move from salary to a percentage of AUM in compensation.
“I’ve also seen a situation where teams get bonuses for adding various team members,” he added.
Salvi said some companies are also adjusting their job descriptions by removing requirements that aren’t actually mandatory.
“Maybe you don’t need a college education,” she said. “The descriptions range from 20 things that are nice to have to seven that are really important.”
In the past, branch managers were responsible for distributing client accounts to co-workers when an employee left or retired, and white, male planners often received more than their share of plum assignments. Now companies are trying to split accounts more evenly.
“There’s so much growth, especially in the RIA space, that it takes a lot of hiring to keep up,” Salvi said. “It’s a tighter job market for everyone. It’s important to really look at it strategically and for the long term.”