Over the past five years, the wealth management industry has been impacted by extraordinary forces simultaneously: demographic, technological and regulatory. The magnitude and pace of change in the delivery of financial advice is fueling a once-in-a-generation move toward higher standards of professionalism and innovation. Our industry can accelerate and facilitate this movement by providing better career starts for the next generation of professionals.
Baby boomer and Gen Xer financial advisers started their professional lives on a "sink or swim" basis, driven by compensation dependent on commissions and fees. This method of "learning by making mistakes," while valid, has proven expensive in many ways for both firms and investors, and it is not likely to attract the next generation of potential financial services professionals. Millennials openly prefer and seek out pathways to ever-increasing levels of responsibility and changing experiences, avenues for collaboration and opportunities for training and mentoring.
'LEARN BY WATCHING'In most other professions, trainees "learn by watching success." Medical graduates shadow an experienced doctor in a residency program; education professionals observe a successful instructor as part of their student teaching program; entry-level accounting and legal professionals assist senior partners before practicing autonomously.
Our industry's historical approach has resulted in high dropout and failure rates for new financial advisers. Further complicating the industry's struggle with talent retention is the fact that the future workforce isn't arriving "workforce ready." It arrives with traditional university education rather than industry-specific instruction. When you study accounting and graduate, you can do accounting. But studying accounting, finance, management, marketing, or even biology or psychology, does not qualify or prepare you to be a wealth manager.
One step forward is earlier access to competency and training programs. The Financial Industry Regulatory Authority Inc. initiative to introduce a general knowledge exam is a notable attempt to provide entry-level employees with core knowledge and a faster start. Whereas the current licensing process requires candidates to already be hired by a registered firm, the proposed program will be available to all interested individuals — thereby expanding access. Importantly, by covering the primary material in the current comprehensive test, it will also give candidates an early understanding of and respect for industry rules. Regardless of their ultimate career choices, they will be more financially literate citizens. For firms, the proposed exam will provide a larger pool of prequalified candidates who have already demonstrated that they grasp the information by passing the initial exam.
PROVIDES RULES, NOT PRACTICESBut the exam is only a start. It provides grounding in the rules, but not the practices. Industry and academic leaders need to better align their communities to provide practical introductory content such as financial planning, retirement planning, education funding, intergenerational wealth transfer, business owner issues and basic product knowledge. A number of worthy initiatives are already underway with committed leadership by the Certified Financial Planner Board of Standards Inc. and CFA Institute within their professional disciplines. However, the breadth of investor issues, including the importance of interpersonal communication, behavioral finance and emotional intelligence are equally critical topics.
The industry needs an intermediate-level professional development program, bridging the gap from the introductory content provided by on-boarding training programs and the very advanced professional designations of CFP, CFA, CIMA, CAIA, etc. The designations are significant achievements when completed, and require a lifetime of ethical and professional performance, but their pursuit requires an upfront decision and commitment to completion. An intermediate-level program that encompasses the early chapters of all disciplines would enhance financial professionals' broad-base competency while helping candidates identify and select their areas of career focus or specialization.
A prime example of the growing need for more specialized professional development content is the area of sustainable investing, incorporating environmental, social and governance factors in decision-making. Investor demand for sustainable, responsible and impact investing has grown 33% since 2014, according to the Forum for Sustainable and Responsible Investment Foundation's 2016 report, now accounting for $8.7 trillion in assets actively managed in the U.S. A much-needed curriculum on this topic would align and engage younger investors and the increasing number of women investors, while demonstrating a commitment to higher standards and professionalism.
The evolution of adviser teaming has emerged as another means to create scale and bring specialized expertise into existing practices. It is also a natural path for career development, allowing the understudy to learn about the practice while adding valuable leverage to the senior partner. Given rapid shifts in technology, teaming also can allow the understudy to act as a reverse mentor for the slow-to-change incumbents on the team.
If the industry can rethink entry-level preparation and early-career experiences with associate/resident-type programs, and think about talent development as an investment rather than an expense, it will enjoy higher and less expensive retention and end up with more knowledgeable, passionate and productive employees.
We know what millennials seek and value in a career experience. As an industry, let's build these pathways and they will come!
Craig Pfeiffer is the president and chief executive of the Money Management Institute.