Staffing & Culture | 12.13.23
Wooing Veteran Financial Advisor Talent Requires Full-Court Press
by: Rich Blake
It’s hard to find good people, and equally challenging to keep them.
Just ask banks and credit unions, where shifting dynamics, including demographic changes, as well as competing business models, have been undermining their ability to attract and retain senior advisors.
With the rise of independent firms catering to registered investment advisors (RIAs) and with the largest banks and brokerages still prioritizing their wealth management units, small- and medium-sized banks have lagged in terms of net advisor headcount, according to the Cerulli paper.
One big challenge heading into 2024: how to keep seasoned staffers from winding down their careers by way of a bolt out the door to a competitor offering a sweet deal involving succession plans and related payouts.
"We’re all painfully aware of the fact that it’s difficult to attract and retain talent," one regional bank advisor told Cerulli researchers.
Recently, Cerulli did a deep dive into the senior-level talent recruitment conundrum in partnership with BISA, the leading financial services industry association.
Cerulli, a consultant to money managers going back to the early 1990s, conducted 14 interviews with wealth management executives at banks and credit unions to gain insight into recruitment models and related headaches keeping veteran staffers. It’s nothing short of a wake-up call.
Establishing career path options for advisors in the later stages of their career was flagged as particularly crucial for banks.
"We need to devise some form of compensation platform where people want to stay here instead of just going to our competitors, or to larger broker/dealers,” a regional bank advisor mentions.
Catching Up To Do
It’s not as if fostering an elevated sense of job satisfaction has been a low priority for financial institution executives. But it’s a tricky proposition, requiring a long-term vision that can easily be obscured by nearer-term realities.
Andrew Barber, a wealth management researcher based in Corning, N.Y., contends that some regional bank investment groups are enduring lower growth (headcount, assets under management) today as a direct result of strategic decisions made over the past couple of decades.
"Today's aging advisors, ones who are the significant producers, very often will have a client base predominantly composed of baby boomers," Barber explains.
But the world has changed dramatically since this camp of boomer-wealth-courting professionals came of age. Generation X and subsequent younger generations came along, craving new techniques and approaches to handling their nest eggs.
The opportunities are there, Barber said. "But benches are light."
As banks and credit unions brought in talent hired between 1995-2005, the industry's revenue model switched from a preponderance of high-commission "load" products toward asset-based-fee arrangements, ultimately leading to an over-dependence on services catering the Greatest Generation in their golden years and to boomers bringing up the rear. The boomer “pig-in-a-python” demographic bore bountiful reoccurring revenue, as envisioned.
But, as Barber explained, in some cases bank advisory teams hewed too closely to the path of least resistance, leaning heavily on their seasoned veterans (and their boomer clients) while neither building a stable of younger advisors, nor emphasizing cultivation of younger clients.
How and why this played out as it did seems to owe to a confluence of trends, including, on the client side, younger people being skeptical of financial services products and generally having less money to put to work relative to their forefathers; and as far as what stymied the entrance of younger advisors — in part it stems from the rise of new fee-based models, sans big-ticket commissions that many had come to expect. Eating what you killed, to some extent, turned into death by starvation for the advisors who didn’t necessarily lean into the new way of doing business via fee-based arrangements that relied on long-term asset gathering.
The retail advisors who did come into and remain in the industry over the past 15-20 years are a new breed of senior-level talent — old enough to have survived booms and busts, though young enough to know their way around a software program — and now find themselves in high demand.
Over the past five years, hybrid and independent RIAs continue to experience the fastest level of growth among various competing channels.
According to Cerulli research, the share of advisors who are affiliated with an independent RIA (in their tent but running their own business) has increased from 16% in 2011 to 25% in 2021. This growth has come at the expense of companies that maintain rosters of full-time employees.
Independent RIAs will continue to gain market share compared to employee-based channels over the next five years, Cerulli said.
A ‘Second’ Way Forward
One of the most pervasive senior recruitment lassos thrown out by RIA firms and brokers are so-called “second-story programs.”
Banks and credit unions, as it turns out, simply need to rip this page from their rivals’ playbook, and do so more vigorously.
Such a program allows advisors to: boost their payout; attain a greater level of independence; transition lower-value clients to either a younger advisor or a centralized advisory group (i.e., call center); and, in some cases, receive a limited buyout or one-time bonus from the bank as well.
Long tenured and more experienced advisors, who typically are 15 to 20 years into their careers, “often find the second-story affiliation model appealing,” Cerulli said.
It enables them to have a greater level of control over their business while still taking advantage of resources and support provided by the financial institution.
Additionally, banks can benefit from this arrangement, as they are better poised to attract and retain skilled advisors from other channels and they can facilitate an arrangement where the “graduating” advisor can transition some clients to another, likely more junior, staffer within the bank.
This transitioning of smaller but still-valued clients can serve as a preparatory stepping-stone to when it comes time to do more complex client succession planning later on, as veterans and proteges establish comfortable working relationships.
Cerulli said: “The first step toward a full suite of options to attract and retain senior advisors is to establish a second-story program.”
To learn about more strategies for recruiting and retaining senior talent, download the 2023 Cerulli/BISA white paper, "Improving Recruitment and Retention Throughout Advisors’ Lifecycles: Uncovering Opportunities and Best Practices Within Banks."