A Talent crisis is coming to the wealth management industry due to the expected exodus of advisors from the workforce. Over the next 10 years nearly 40% of the current financial advisor population is expected to retire. Despite the common misconception that they will be able to be replaced with sophisticated online portals or robo-advisors, there are strategies that advisors approaching retirement can use to optimize their earnings during the transition to retirement.
The fact that the advisory industry is facing a shortage of new talent is not entirely surprising given how the industry has evolved over the past 20 years. Advisors have been making the move to more independence and are more prone to switching firms. This has had the effect of causing many large financial services firms to scale back the depth of their training programs and instead focused more on simply hiring away the best experienced talent from the competition.
Obviously there is going to be a rapidly rising demand for the next generation of talent to replace the many retiring advisors. Fortunately, there are well established models to gain professional leverage by seeking out ways to improve the efficiencies in your practice today, which will allow for the development of a viable succession plan. The reality is only a very small percentage of practices ultimately get sold, most of which are single owner practices. The remainder exit the business by attrition and the gradual departure of clients over time as advisors spend less time working, causing underserved clients to bolt. The bottom line to this approach is that it squanders considerable amounts of potential equity as well as having the potential to fail your duty to see your clients’ retirement plans through.
There is an expanding list of solutions and technology available that allow advisors to do more with less, achieving economies of scale that were previously unheard of. However, advisors still spend up to 70% of their time on tedious manual tasks. Greater efficiency means greater productivity and greater reward, which in turn effectively means older advisors can continue to serve clients well into semi-retirement. You only need to seek us out.
An advisors primary function is to provide expert wealth advice and offer consistent and superior service to clients. To deliver on this promise advisors need to focus on quality over quantity. Being an effective advisor requires a substantial amount of training, education and experience. But being all things to everyone is not going to last. This is one of the reasons outsourced fee-based models are gaining in popularity as advisors look to downsize their responsibilities; since they typically produce a recurring, predictable stream of income for considerably less work.
Taking care of now is essential, but so is creating a succession process which may entail a planning horizon of 10 or more years. Ideally, the plan is as robust as possible and may consider a need for hiring from outside to set your succession plans in motion. Advisors contemplating retirement need to examine their long-term talent strategy by taking the following steps:
- Identify desired target candidates’ personal characteristics that reflect your firm’s business strategy and culture.
- Identify candidates who possess desired personal characteristics.
- Define your value proposition that successfully attracts today’s candidates.
- Develop an effective compensation program that rewards performance, retain top performers and reinforce your strategies and culture.
This is a formidable list but there is an alternative. Outsourcing is just another way to acquire talent. Advisors can develop and adopt talent strategies that will attract, engage and retain their future replacements, or they can have a firm do the back office heavy lifting. The role of the financial advisor is on the cusp of a reawakening as the world shifts into a more modern and efficient approach to advice giving. Advisors are migrating to the role of quarterback, assembling the resources, technology and counterparties to ensure their clients meet their financial goals while receiving a superior client experience.