The passing of the torch: A challenge as much of an opportunity
For college students and young professionals looking to leave an unforgettable impact on others, the financial planning and wealth management industry currently presents an unprecedented opportunity. In a U.S. News article written by Julie Pinkerton, a J.D. Power study found that “the average age of a financial advisor is about 55 years old, with about one-fifth of industry professionals being 65 or older. Over the next 10 years, Cerulli Associates estimates that more than 111,500 advisors will retire, which represents more than one-third of the workforce and assets” (Pinkerton). From a succession planning perspective, this may present a challenge as advisors look to transition their practice to the next generation of advisors. While the wealth management industry requires a substantial amount of quantitative analysis and thought, it is also grounded in the relationships that are built, maintained, and evolved over time. The goal of succession planning for a wealth management firm can be seen as two-fold: a seamless passing of a long-term relationship to a younger advisor in addition to an easy transition into retirement for the existing advisor.
Philip Palaveev, founder and CEO of The Ensemble Practice LLC, recently spoke at the annual Advisor Growth Summit regarding this topic. Talking specifically about independent advisory firms, Palaveev said, “As we double in size, we need people who are capable of taking care of clients, capable of creating systematic growth, capable of providing management and leadership, people who are capable of being mindful, thoughtful investors in the firm” (Reed). This “passing of the torch” may seem attainable and easy to plan for on paper, but trying to execute it is a whole different animal given the relationship-centric foundation and growth of the industry over the past 20 or so years. Paleveev would go on to say, “That path should start with employees becoming good technical advisors, then good relationship managers, then good lead advisors with some control, and finally good business developers and business managers” (Reed).
For the younger generation of advisors just beginning their careers, there are important considerations and mindsets to be had when becoming grounded with a growing firm. This includes an open mind to learning, developing both personal and technical skills, and becoming a great teammate (Reed). Unbeknownst to many high school and college students thinking about entering the financial services industry because their Robinhood account rate of return during the COVID-19 pandemic was Buffett’esk, the most important skills to be successful involve relationships, not numbers. Relationships may begin with a cup of coffee or a bump of the shoulders at the train station, but they take time to develop. It’s a leap of faith when passing longstanding relationships to the next generation, “it’s a leap of faith from the perspective of the owners and founders of advisory firms who have to believe this is going to work out. They have to believe that this next group of people is going to be just as talented, just as dedicated, just as ambitious and just as capable as they have been” (Reed).
Reed, J. L. (2022, March 24). Advisors wait too long to focus on succession plans. Financial Advisor. Retrieved March 27, 2022, from https://www.fa-mag.com/news/advisors-wait-too-long-to-focus-on-g2--expert-says-66995.html?section=43
Pinkerton, J. (2021, November 16). The Risks of an Aging Financial Advising Industry. U.S. News. Retrieved March 27, 2022, from https://money.usnews.com/financial-advisors/articles/ramifications-of-aging-on-the-client-and-advisor#:~:text=According%20to%20a%202019%20J.D.,professionals%20being%2065%20or%20older.