Everyone wants NextGen advisors. Why can’t they find any? 

The average age of a financial advisor is 57 and climbing, according to a J.D. Power survey. There are more advisors over the age of 70 than under the age of 30, according to the Certified Financial Planner Board of Standards Inc. That imbalance can present numerous growth and succession challenges for the wealth management industry.

For firms pursuing M&A as a growth strategy, diversity in age should not only be a consideration to provide historical knowledge and wealth management experience but also a method of ensuring a foundation for succession planning. Advisors early in their careers are an ideal group to buy books of business, but this demographic is getting harder to find.

Meanwhile, the need for financial advice continues to grow as more individuals have access to retirement savings plans or investment platforms. The Department of Labor estimates the need for financial advisors will outpace other professions in the coming decade.

SUCCESSION AND GROWTH

Not only does an influx of younger advisors take pressure off a firm’s owners, allowing them to transition more seamlessly than those at firms forced to pursue consolidation, but this diversity in age can help ensure that the firm is able to capture future growth. With the DOL projecting an increased need for financial advice over the coming decade, it’s crucial that a firm is positioned to respond to this demand.

What younger advisors can bring to the table is an eagerness to quickly achieve the level of success their older peers have already achieved. They bring a hunger, a passion, to expand their book, or purchase one.

Just as importantly, their longer time horizon can drive organic growth for your firm.

GROWING DEMAND, UNMATCHED SUPPLY

Of course, one of the main drivers creating the need for firms to implement a succession plan is the staggering wealth transfer that's on the horizon. Baby boomers are expected to transfer an estimated $68 trillion in wealth to younger generations over the next decade, creating the tremendous need for financial advisors to support this new generation of clients.

There’s a growing number of professionals nearing retirement across all industries, including wealth management. However, as a wave of baby boomers begin retiring, many wealth management firms have a NextGen pipeline that can’t keep up.

In fact, Cerulli Associates estimates that about 36 percent of current financial advisors will retire in the next decade. Meanwhile, it also estimates that close to 75 percent of advisors with less than three years of experience left the industry in 2022.

That’s a gap that doesn’t bode well for firms or for the clients who will be seeking financial advice as they inherit wealth over the next decade. Or clients who recently inherited wealth and want an advisor with a long career path.

DEVELOPING A PIPELINE

There’s an urgent need to begin closing this gap for RIA firms that seek further growth. That begins with finding NextGen advisors who are poised for growth organically or through succession.

Of course, this is easier said than done, as Cerulli’s report makes clear. So how can firms attract and retain younger advisors and stem the tide of these up-and-coming professionals prematurely leaving the industry?

Some firms choose the unsustainable path of overpaying targeted advisors while others build equity programs, flexible engagement structures or long-term payouts to attract this key demographic. It seems clear that firms with flexible ownership structures and capital programs will have an upper hand when bringing NextGen advisors aboard by giving them a chance to grow and the incentive to do so within that firm’s network.

The wealth management industry is facing pressure from both ends of the advisor spectrum – a larger number of advisors retiring with not enough joining the profession to offset the influx of services that will be needed during the “Great Wealth Transfer.”

Alex Goss is co-CEO and co-founder of NewEdge Advisors, a New Orleans-based RIA.