Adviser Mentoring a Key to Future Growth

Investment firms that actively mentor younger advisers are likely to gain a competitive advantage over the next decade, according to the J.D. Power “2014 U.S. Financial Advisor Satisfaction Study.”

Competitive compensation and strong firm leadership are currently the top factors driving adviser satisfaction, according to J.D. Power researchers, but investment firms need to look ahead and begin developing better mentorship and succession programs. About one out of every three advisers plans to retire in the next 10 years, the research shows, and more mid-career advisers are considering the flexibility and financial benefits of going independent.

This means investment shops will have to compete more aggressively for adviser talent as time goes on, the study suggests. Firms that start focusing on mentoring younger advisers and providing staff with advanced client service technology are likelier to attract and retain loyal advisers, J.D. Power says. Advisers feel a stronger sense of loyalty to firms that provide these services, according to the study.

Researchers examined seven key drivers of adviser satisfaction as part of the study, including adviser/professional support; client/customer-facing support; compensation; firm leadership; operational support; problem resolution; and technology support. Overall, satisfaction among employee advisers on these factors is 721 on a 1,000-point scale. Registered independent advisers (RIAs) showed slightly higher levels of satisfaction in the workplace, at 778 out of 1,000.

“As financial markets continue to do well and overall adviser satisfaction remains relatively high, investment firms may be operating with a false sense of security for their future success,” says Michael Foy, director of the wealth management practice at J.D. Power. “To prepare for the future, investment firms need to implement effective processes to mentor and train young advisers and provide them with the technology and tools that will enable their success.”

The J.D. Power study finds formal training and mentoring have a positive impact on satisfaction for advisers at all stages of their careers. Notably, the research suggests satisfaction is significantly higher among less-experienced advisers (fewer than 10 years) who participate in a mentoring program than among those who do not participate (850 vs. 730, respectively). However, 33% of advisers are not aware of whether their firm offers a mentoring program, suggesting part of the challenge is related to effective communications.

Firms also need to address succession planning for advisers nearing the end of their careers, the research shows (see “Come on, Advisers, Look at Your Own Future”). This is necessary to minimize adviser stress during transitions while also protecting client interests. The study shows a vast majority of experienced advisers (94%)  who say they “definitely will” remain with their firm for the next several years indicate their firm offers succession planning resources and tools, while only 62% of those who "probably will not" or "definitely will not" remain with the current firm say the same.

Foy says the cost for investment firms to recruit experienced advisers to replace those who leave is likely to continue to increase as more advisers move into retirement planning, underscoring the importance of training and retaining talent.

Researchers expect firm leadership to continue to play a key role in cultivating adviser loyalty, specifically through building a values-oriented, client-focused culture and effectively communicating a strategy that advisers believe in. J.D. Power says about two-thirds (62%) of advisers loyal to their firm believe leadership clearly communicates strategic goals, compared with just one-third of advisers who are “neutral toward their firm.”

Approximately nine in 10 advisers (87% of employees and 93% of RIAs) say they "definitely will" or "probably will" remain at their current firm for the next one or two years. Among those advisers, 44% of employees and 52% of independents are “loyal advisers,” identified in the study as those who indicate cultural values and client focus as primary reasons for their intention to stay with their firm. Another 38% of employees and 32% of RIAs say they are “neutral and intend to remain primarily for compensation or contract requirements.”

Not surprisingly, the study shows adviser satisfaction improves with more competitive compensation. Among the 36% of advisers who lack a complete understanding of their compensation plan, compensation satisfaction is significantly lower than among those who have a complete understanding (631 vs. 781, respectively).

Among advisers using smartphones or tablets as part of their client relations strategy, 84% indicate their firm provides smartphone- or tablet-friendly tools. Yet, just 28% of advisers are using both devices for business, suggesting a need for more effective communications and training regarding these technologies.

Nearly one-half (47%) of employee advisers and 20% of RIAs indicate their firm does not allow the use of social media to communicate with clients. Among those who are permitted to use social media, 45% of employee advisers and 40% of independent advisers take advantage of the opportunity.

More information on the “2014 U.S. Financial Advisor Satisfaction Study” is available here.