Data & Research May 1, 2008

Recruiting Young Advisers Requires Less Traditional Approach

Fewer young advisers are entering the field, and those that do are more interested in less traditional, sales-based routes.
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The financial adviser industry should focus on programs that bring in new advisers in order to combat the current shrinking, aging talent pool, says the Cerulli Edge Advisor Edition—Recruiting Issue.

As the U.S. adviser force ages and shrinks, fewer young people are choosing the industry. More than half of the adviser population is over 50 years of age, the report says, while only 3% are under the age of 30 (See B/Ds Dealing With Dwindling Numbers of Advisers).

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Advisers are entering the field older than in the past. In the 1980s, more than 62% of advisers were under age 30 when they entered the industry, while so far this decade only 53% of new advisers have been under age 30 when they started in the field, the data show.

Spurning Tradition

Recent graduates are more attracted to the technical aspects of planning as opposed to the sales aspect, the report says. Many prefer the route of less traditional, sales-based channels of advising.

In the 1960s, 75% of advisers entering the field went to national, full-service firms. So far in the 2000s, that percentage is only 45%. There is a notable growth in other channels, such as registered investment adviser (RIA) firms and banks.

Recruiting Young Talent

Cerulli estimates there are fewer than 100 undergraduate financial adviser programs. Although they operate at capacity, students are not flocking to the major. Many students choose it later in their academic career after pursuing other avenues, the report says.

The lack of interest could be because of the “bad rap’ of the industry as being focused on cold calling, the report suggests. While financial planning is gradually becoming more holistic and team-based, this message has not fully reached the younger generation.

Many firms choose to transition recent graduates into team practices or associate advising positions. The team-based approach is more attractive to recent graduates than the build-your-own-book approach, the report says.

Cerulli suggests more firms should develop the infrastructure to train young talent and assimilate them into established teams. It is also a good idea to establish connections with undergraduate programs in place to absorb new talent. (A list of CFP-registered programs is located here.)


In Practice April 30, 2008

B-Ds Dealing With Dwindling Numbers of Advisers

The number of financial advisers in the U.S. declined from 256,569 in 2005 to 245, 831 last year.
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The change occurred despite favorable demographic trends, according to the latest Cerulli Edge Advisor Edition—Recruiting Edition. “It seems surprising that an industry so remarkably poised to take advantage of the massive demographic shift of retiring Baby Boomers would actually be shrinking,” a new report says.

Not only are there fewer advisers active currently, those still working, and those entering the market, “are graying rapidly,” Cerulli says. During the 1980s, more than 62% of advisers were under age 30 when they entered the industry; so far during the 2000s only 53% of new advisers have been under age 30 when they started. Further, in 2007, only 3% of financial advisers was under the age of 30.

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Part of the aging of the adviser population is because the job of financial adviser is increasingly becoming a haven for second-career professionals, Cerulli notes. Many people coming into the advising profession were from related fields: Of the 78% of advisers for whom being a financial adviser was not their first career, 15.1% were in sales in another industry, 7.3% were an insurance agent, and 6.5% were in accounting or were a CPA. However, the largest group, 31.7% of advisers, responded “other,” and were quite varied, Cerulli notes.

Although related professions (sales professionals, insurance agents, and bank/trust employees) make up significant amounts of new entrants, Cerulli research indicates that individuals in virtually any profession can end up as financial advisers if they so desire. The diversity of previous careers is, perhaps, best exemplified by two survey participants (both of whom have books of business greater than $200 million in AUM) whose previous professions were “Chinese food take-out container salesperson” and “trader in the scrap steel industry.”

In order to combat this trend, Cerulli notes that the industry needs to focus on programs that attract new advisers to become a part of existing teams.

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