BrokerDealer.com/blog update courtesy of extracts from today’s NYT DealBook
Joseph H. Clinard Jr. is 76 and spends his days planning for retirement — just not his own.
Mr. Clinard has worked for more than 50 years as a financial adviser, and he has no plans to stop anytime soon, despite the fact that many of his clients have stopped working or soon will.
“I don’t think my wife wants me home, to tell the truth,” Mr. Clinard said.
Many of Mr. Clinard’s peers share his outlook. The average financial adviser in the United States is older than 50, a number that shows no sign of getting lower because relatively few young people are interested in the work. That is creating a problem for Wall Street, which after the financial crisis likes the idea of managing other people’s money more than it did before. As both independent firms and large broker-dealers attached to investment banks try to expand their asset management businesses, they must figure out how to attract and retain a fresh pool of talent that is increasingly looking to find its riches elsewhere.
“All of us in this industry are facing the same dilemma, which is, where is that next generation going to come from?” said Erica McGinnis, the president and chief executive of the AIG Advisor Group, where the average financial adviser is 54. “There certainly are people who are not being served by financial advisers because there are not enough of them.”
Of the 315,000 advisers working in the United States, only 5 percent are younger than 30, according to data from the consulting firm Accenture. Richard Stein, a partner at the executive recruiting firm Caldwell Partners, estimates that half of all advisers working today are within 15 years of retirement.
At the same time, firms like Morgan Stanley and Bank of AmericaMerrill Lynch, which rely on thousands of advisers to serve their clients, have made it clear that they intend to increase their wealth management businesses as traditionally more lucrative operations, like trading, have largely dried up.
“It’s a real problem for them because the only way they can grow their assets under management is by hiring new advisers, and there’s a limited supply,” Mr. Stein said.
As a whole, Wall Street is a less attractive place to work than it used to be for new graduates. Many Americans distrust the banking industry more now than they did before the financial crisis, and the paychecks aren’t as large. Fewer college students want to go into the financial services sector at all, Mr. Stein said. Instead, they are drawn to budding social media and technology start-ups, hedge funds and other fields beyond the financial services sector.
In one sense, that could mean less competition — and more opportunity — for younger people who choose to become financial advisers. But the compensation model has changed as well.
Advisers used to rely on commissions, meaning that they would make money from every transaction executed on a client’s behalf. But the industry has shifted more toward a fee-based model, which pays an adviser a percentage of the money under management. That may be fine for an older adviser who has a large book of clients, but it can be a deterrent for people just starting out in the business.
Big firms say that the fee-based model helps align the interests of clients and their advisers, but it is also contributing to their staffing problem. Big retail brokerage firms are increasingly losing advisers to independent firms, which offer a bigger cut of fees. According to Mr. Stein, more than $100 billion followed brokers from the big firms to independent ones last year.