Beware the gap coming in the number of financial advice professionals

The relatively small Gen-X and the still-young millennials aren't filling the shoes of their baby boomer elders in the industry

Feb 22, 2017 @ 2:15 pm

By Jeff Benjamin

With the average financial adviser now 51 years old, and as the baby boom generation grinds toward retirement, it's only natural to fret over a potential dearth of fresh faces to fill the advice ranks.

From a big-picture perspective, David Canter, executive vice president for practice management and consulting at Fidelity Investments, sees a considerable gap between the retiring boomers and the much-younger millennial generation that he says can't be fully filled by the smaller Generation X.

"Firms seem to be moving with more urgency to prepare the next generation of talent, but there's still not enough focus on it by a lot of leaders of RIA firms," he said.

Cerulli Associates estimates that 29% of the country's more than 300,000 financial advice professionals are between ages 55 and 64, and another 12% are over age 65.

The largest group, at 33%, is between 45 and 55.

The drop-off is precipitous from there, down to 16% of advisers between ages 35 and 44, and just10% under age 35.

The CFP Board of Standards Inc., which includes 77,000 certificants and is considered a good proxy for the overall financial planning industry, has a similar breakdown by age. They emphasize the fact that more CFPs are over age 70 than under 30.

"If we don't take action, we're going to find ourselves with a significant shortage of financial advisers," said Kevin Keller, CFP Board's chief executive.

Citing that there are now 240 colleges and universities that have programs to prepare students to sit for the CFP exams, including 34 institutions added last year, Mr. Keller said things are moving in the right direction, but maybe not fast enough.

The number of bachelor's degree graduates from those programs was 1,173 last year, up from 760 just a year before and 440 in 2012, according to CFP Board.

Financial adviser age breakdown
Cerulli data
<35 10%
Average age51.1
CFP data
No age given3,5894.68%
Source: CFP Board and Cerulli Associates

"Through our Center for Financial Planning, we have spent $65 million over the past six years to raise awareness around financial planning as a service and a career, but financial planning is still a very young profession and we don't have clearly defined career tracks yet," Mr. Keller said. "One of the reasons colleges and universities are keen to add these programs is because there are jobs for the graduates, but we still suffer from a lack of awareness for financial planning as a career option."

Theodore Feight, the 70-year-old owner of Creative Financial Design in Lansing, Mich., is living the reality of how challenging it can be to groom the next generation.

"So far, I've tried to hire four different kids," he said. "I had an intern here last, but when he got done he was headed to work in New York."

While Mr. Feight has arranged through FP Transitions to have his firm taken over "if I drop dead tomorrow," he has struggled to find the next generation to take over his practice so he can fully retire.

"I've got plenty of people who want to buy my firm, but what I'm looking for is a CFP who doesn't have too many bad habits," he said. "I'm having a hard time finding somebody, and people are stealing them up because there's not that many out there."

If Mr. Feight seems a little late to the task, it might be because his Plan A was to have his son Richard take over the business. But that plan fell apart when the two disagreed about how to manage client assets during the 2008 financial crisis.

Now Richard Feight has his own firm, IAM Financial.

"Maybe I should have been giving him more independence, and maybe older people like me need to communicate better," the elder Mr. Feight said.

But as urgent as the situation might seem, Michael Kitces, partner at Pinnacle Advisory Group, said the relatively small number of younger advisers is correcting itself because boomers are working longer.

"I believe the shortage of younger advisers to replace retiring boomers is largely a mirage," he said. "The reality is, boomers aren't retiring; they're staying on and just allowing their practices to wind down over time, because it pays better to keep a lifestyle practice than it does to sell it."

In some ways, that's what Mr. Feight is doing by not taking on new clients and preparing to work into his 70s.

However, there are lots of other ways to deal with the industry's generational migrations.

"I agree that this is a serious issue, and I do think we'll see a reduction of people getting into the financial planning profession," said Carolyn McClanahan, director of financial planning at Life Planning Partners. "But I also think with the advent of robo-advisers and people having more tools to get advice directly, the number of planning firms needed will also go down."

But Mr. Canter believes the advice industry is heading toward a specific gap of about five years over the next decade when the boomers will be mostly gone and the millennials, those now between ages 17 and 37, won't be in a position to take over.

"If you're a baby boomer running a solid firm and thinking of the future, you've basically got four choices," Mr. Canter said. "You can sell and stick around for a few years, you could merge and find talent to run the firm, you could transition the business to internal talent, or you could let the firm atrophy and you just follow your clients toward deaccumulation and there will be no terminal value."

Mr. Canter worries that too many advisers will end up with the fourth option.

"We see with a fair amount of frequency firms not having made the appropriate arrangements for the next generation," he said.

Mr. Keller is slightly more optimistic.

"Those of us in the baby boom generation get frustrated that millennials don't want to advance as fast as we did, but I'm not as pessimistic as others might be," he said. "I think we're creating an exciting profession, and you have to remember that the millennial generation is larger even than the baby boom generation."


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