Training on the back burner

THE LOOMING CRISIS in the financial advisory industry has become a familiar refrain: There just aren’t enough advisers to meet the growing demand.

In 2011, the number of financial advisers in the U.S. fell 2% to 316,000, according to data from Cerulli Associates Inc. The ranks have shrunk by 7% since Cerulli first began tracking the numbers in 2004. With the bulge of baby boomer advisers heading toward retirement, the numbers will only get worse in the coming years.

The high average age of advisers in the industry — mid-50s by most estimates — is half of the problem. The other half is the relatively small number of young people entering the business. A lack of effective training programs and meaningful internship opportunities in the industry often are cited as among the chief culprits.

“There’s an awareness of the issue, but we’re just not seeing a lot of investment in training and mentoring of young people in the industry,” said Cam Marsten, a consultant who focuses on intergenerational differences and how to help businesses attract millennial employees. “Either older advisers are going to move their businesses to another firm or they’re going to roll up the sidewalk. There’s going to be a lot of consolidation in the industry.”

UNCERTAIN RETURN

In the challenging post-financial-crisis environment for advisory firms, the uncertain return of an investment in training new advisers is harder to justify than recruiting advisers with established books of business.

“Over the last several years, recruitment has become more important in the industry,” said Tom Fickinger, head of adviser growth and development at Bank of America Merrill Lynch. “It takes a lot of capital to develop new advisers, and the payoff is two to seven years in the future, compared to the immediate return of recruitment.”

Of the four wirehouses, Merrill Lynch has maintained the biggest investment in adviser training. The company currently has about 4,000 people in its three-year Practice Management Development program. Trainees earn a salary and commissions for three years while attaining their license and getting a range of training on financial planning, sales and marketing.

That’s all well and good, but the numbers are sobering. Mr. Fickinger said that only about 40% of candidates get their license, and not everyone who gets one goes on to become an adviser. “It’s not an easy job,” Mr. Fickinger said. “People fail for three reasons in this business: they underestimate the commitment involved, they can’t take rejection or they’re not comfortable taking risk.”

With those odds, selection of the right candidates to invest time and money in becomes all the more important. That’s one reason many firms have focused on career changers who have been successful in other endeavors. It doesn’t preclude young people from getting a shot in a training program, but it does make it harder.

“Age has nothing to do with success in this business. We have some people who have come right out of school,” said Mr. Fickinger, who noted that 80% of advisers at Merrill got their start in the industry with the firm. “What’s consistent is, they have a proven track record of success in something.”

FEWER RESOURCES

Smaller broker-dealers and registered investment advisers are even more challenged to prepare young people for careers as advisers. With fewer resources, the margin for error in the investment is smaller.

“In the broker-dealer space, firms are willing to pay a lot for advisers near the end of their careers, but they’re not willing to invest in training for the next generation,” said Kim Dellarocca, head of practice management for Pershing LLC. The firm estimates that the industry will need another 237,000 advisers over the next decade to meet market demand.

Like the other custodians for RIAs, Pershing is offering a wide range of free training classes for financial advisers and other roles within advisory firms to help pick up the slack.

“We as an industry can keep recruiting [existing advisers] or we can start investing in the next generation,” Ms. Dellarocca said. “We offer these classes realizing it’s a core need for independent RIAs and broker-dealers.”

Traditionally, the industry has taken a tough-love approach to young advisers looking to enter the industry. The training programs at large firms typically include some sales and product courses as candidates work to get licensed. But the essence of the training experience has been to give a person a desk and a phone, and tell them to build a book of business.

“I spent two weeks in St. Louis getting some sales training, and we had a coach in the room to help with the cold calling,” said Jeff Rose, a 35-year-old adviser with Alliance Wealth Management LLC, who started his career with A.G. Edwards & Sons Inc. out of school in 2001. “That was the training.”

He was hired by an adviser as a part-time intern while working toward a degree in finance. Although he said the adviser was always helpful, Mr. Rose also explained that he essentially was on his own. Not surprisingly, several of his colleagues dropped out of the program.

“KINDER, GENTLER WAY’

The solution lies in higher education and laying out a clearer career path for millennial job candidates, according to Craig Pfeiffer, chief executive of consulting firm Advisors Ahead LLC. “There’s a whole population of college-aged kids who can do the work but we need a kinder, gentler way for people to get into this business,” he said.

The key to success for companies and the industry in developing next-generation advisers is to understand that younger people require more attention and flexibility than the industry historically has been prepared to give, Mr. Pfeiffer said. Older career changers may be prepared to hit the ground running, but college-age candidates need more.

Using connections at the growing number of universities that offer financial planning degrees, Advisors Ahead places students and graduates in structured internships and entry-level training programs that are more nurturing than the traditional sink-or-swim model of adviser training.

“We don’t have a meaningful freshman class in this industry. We need a new model to bring entry-level talent into the business,” Mr. Pfeiffer said. “Firms are going to have to build or buy the capability.”

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Related Topics: Practice Management