Insights | 10.24.18
The Force Awakens: Making Room Today for the Advisors of Tomorrow
Advisors don't grow on trees. But they can be grown.
During a nearly two-decade stint as a senior executive at St. Louis-based Commerce Brokerage Services, Chris Radzom created a "Junior Advisor" program to incubate the firm's future producers. His program's “graduates” would ultimately account for over 15 percent of the firm's financial advisor (FA) revenue.
This past summer, Radzom joined Atlanta-based LGE Community Credit Union, where he is now preparing to put together a new pipeline.
"The toughest part of our business is sourcing good candidates," Radzom said. "It's tough, but we have to look at every option available. Because let's face it, the average age of the typical FA is ... up there."
In surveys and at industry events, bank and credit union executives continue to hammer home the importance of recruiting new talent to back fill for an aging advisor force. It's a thorny issue fraught with questions on the front end, such as: How do you pay these people so that they build their book the right way (i.e., for the long term)? And, of course, there are questions on the back end, such as: How do you off ramp a top producer who is set to retire without losing his or her book of business?
For a financial institution’s investment services business, there are only two primary drivers of revenue, explained Peter Bielan, Principal at Kehrer Bielan Research & Consulting. The first is the number of producing advisors (sales force). And the second is the amount of revenue they produce (productivity).
"Our industry has experienced great productivity gains, particularly in the last few years," Bielan said. "However, these productivity gains have contributed to increased revenue but have masked a stagnant level of advisors."
'A Supply & Demand Mismatch'
The issue of not being able to add enough advisors is so utterly paramount because it impacts a firm's ability to grow revenue and, ultimately, net income.
Simply put, the number of advisors is not growing. According to data from the FINRA Advisor database and annual reports, there are 32,888 (5 percent) fewer licensed advisors than there were seven years ago.
Most firms are looking to add advisors, but the number of available FAs is dwindling.
"We are in a supply and demand mismatch," Bielan said.
At LGE, Radzom said that while he is open to finding talent from colleges and rival firms, he still believes his best chance to find quality candidates is right under his nose.
"The No. 1 thing we can do here is leverage the bench strength we already have right at our branches," he said, adding that the culture at LGE is conducive for career path guidance and support for anyone who wishes to transition from working as a teller to doing advisory work.
Now Radzom wants to go a step further by creating a program where someone solidly suited for advisory work can learn the ropes of the business by spending a few hours each week shadowing an FA, assisting, watching, learning and assisting in some servicing work.
"That kind of approach comes with its own set of challenges," he admitted, pointing to the need for others at the branch to step in and do things while a staffer is on shadow detail. However, this can be circumvented with the right planning and by working more efficiently.
How to structure compensation for new advisors is another constant source of consternation. Many in the industry say there needs to be a longer period of more base salary, so an advisor can transition toward reaping more incentive pay once their book is established. This will require two or three years of base salary prior to transitioning to incentives, as opposed to one year. Having too short of a runway from a suitable base salary that puts bread on the table to the eat-what-killed phase creates improper incentives.
Transitioning to Retirement
Firms not only have to address finding new advisors but also need to find better ways of winding down their relationships with aging advisors near retirement. Many advisors at the end of their careers are tempted to cash in on the way out by going to another firm willing to pay up for their book.
"If you are not having conversations about retirement transition packages long before the advisor retires, then you are already too late," Bielan said. "There is an advantage to putting the transition plan in place before advisors are ready to retire, so they know what the future holds and don’t feel the need to shop their book."
Any firm that has lost a long-term advisor just prior to retirement knows how financially costly and how long it takes to replicate that lost business, he added.
One recent development that Radzom said should make it easier to recruit younger candidates is FINRA’s decision to break the Series 7 exam into two parts, such that someone from outside the industry can begin down the road of preparation without having to already be employed by a financial services firm. This removes a chicken-and-egg conundrum that has hindered firms in the past.
And another good part of nurturing homegrown talent is that success stories spread around and become morale builders. It becomes a virtuous cycle, Radzom said.
Rich Blake A veteran journalist based in New York City, Blake has covered the financial world for numerous publications, including Institutional Investor, ABCNews.com and Reuters. Blake was a co-founder and executive editor of Trader Monthly magazine. The Buffalo native is the author of three nonfiction books, including “The Day Donny Herbert Woke Up,” which is currently being adapted into a motion picture. In 2004, Blake was nominated for a National Magazine Award in the Reporting category for Institutional Investor.