Smaller is Better, Says Next Generation of Advisers

The next wave of advisers are upbeat about the industry, prepared to network for jobs, and express do-gooder sentiments, according to a May survey of 160 financial planning students conducted by Schwab Institutional and Texas Tech University’s Division of Personal Financial Planning. The most striking trend is that they prefer smaller, more specialized firms.

Like typical Generation Y-ers, this next wave of advisers prefer to discard the old-school rules about going the typical route—in this case, to larger firms (see Talking to Twentysomethings). More than 70% of students surveyed indicated a preference to work at a boutique firm that specializes in either financial planning or managing client investment portfolios, according to a press release about the survey results. The majority of students (57%) felt that a firm with fewer than 35 employees would be the best fit for them, while just 7% said they are looking to work at a larger firm with 75 or more employees.

“Independent adviser firms are seeing continued strong growth, which is driving their need to hire additional staff and build capacity,’ said David Welling, Schwab Institutional vice president of adviser practice management, in the release. “According to Schwab’s most recent benchmarking study, 72% of adviser firms cite staffing issues as a key barrier to growth, making the next generation of advisers an important resource pool for firms to tap.’

In a report earlier this year, Cerulli says that advising firms must develop new ways to recruit the young flock of advisers, such as bringing recruits on in a more team-based approach (see Recruiting Young Advisers Requires Less Traditional Approach)

Compensation seems to be the largest consideration for future advisers when choosing a job. When asked about the most important factors in choosing a specific employer, the majority of students (58%) said that annual salary and total compensation package is most important, followed by the ability to have a healthy work/life balance (49%) (see Firms Increase Recruiting Efforts for New Advisers). Sixty-two percent expected the annual income for their first full-time position following graduation to be between $35,000 and $55,000, the release says.

When asked about the strategies they are using to connect with potential employers, nearly 90% of students said that word-of-mouth networking with professional contacts, family and friends is the most useful tool in their job search. Students also indicated that internships (73%) and on-campus job fairs and employer interviews (69%) are helpful in helping them get introduced to employers.

Clients First

While compensation might help choose an employer, this is not what students said necessarily attracts them to the profession.

More than half (51%) of students surveyed cited helping people in a meaningful way and putting clients’ interest first as a primary career motivator, the release says. More than three times as many said the ability to help clients is a more important factor than the chance to make a good living, which ranked second on the list of benefits (15%).

“Putting clients’ interests ahead of everything else is one of the key cultural principles of the independent investment advisory industry,’ Welling said. “It’s wonderful to find that putting clients first is a significant motivator for the next generation of advisers, because one of the most important issues for advisers looking to hire staff is finding employees who fit with their firm’s culture.’

Great Expectations

Students participating in the survey were overwhelmingly upbeat (96%) about entering the investment advisory industry in the current market and economic environment. Students are also reasonably optimistic about the market: 62% expect the S&P 500 to go up over the next six months.

Future advisers are realistic about their entry-level roles. Most students do not expect to have direct responsibility for managing a group of clients or to be involved in direct business management during their first two years of employment.

Sixty-four percent expect to handle back-office operations such as managing client trade requests and conducting data entry. Nearly as many (63%) expect to be involved in some way with the creation of client financial plans.

The expectations change looking ahead four to five years, when twice the number of students (82%) expect to be managing portfolios directly.

“Students preparing to enter the investment advisory industry seem to be very level-headed about their expectations for entry-level roles and responsibilities,’ said Deena Katz, associate professor of personal financial planning at Texas Tech University, in the release. “But we also found that they have a strong desire for quickly increasing levels of responsibility, independence, and client contact.’

Photo of David Welling, Schwab Institutional vice president of adviser practice management