The wealth management industry is working out ways to diversify its aging workforce.
In 1982 Diane Gabriel was the only female financial advisor at the New Jersey branch of a brokerage firm she joined at the age of 21. In those days, only 10% of advisors were women. She ended up doing well, and after the brokerage was sold to Wells Fargo in 1996, she made her way up the ranks to become a senior advisor at the bank.
Surprisingly, the small percentage of female financial advisors industry-wide has only increased from 10% to 18% today. People of color represent just 2%.
The result is a financial advisor workforce that is still dominated by white men. Also of serious concern for the sector’s longevity is the fact that financial advisors are, on the whole, an aged bunch. Fewer young people are entering the profession. The average age of an advisor is 50 and continues to rise every year, according to consultancy EY. Only 5% are younger than 30.
The aging of the financial advisor workforce comes at a time when demand for their advice is accelerating. The oldest baby boomers have started transferring wealth to their children. Generation X and millennials will accumulate $46 trillion in assets by the end of the decade, including $18 trillion in inherited assets from baby-boomer parents, according to EY. In turn, many of these younger people don’t want to work with older advisors. They want an advisor who looks like them.
Recognizing the ticking time bomb, Wells Fargo introduced a training program five years ago to diversify staff in its wealth-advisory division. Recruits can start as trainee associates who receive a salary while they learn the ropes over two years. During this time, they receive a book of clients from a senior financial advisor mentor. After the training program is over, recruits can stay salaried or move on to commission-based variable compensation.
Gabriel, who heads the Wells Fargo Advisors’ Next Generation Talent program, says the tradition of paying financial advisors variable compensation, a holdover from the stock brokerage sector, is one of the main reasons women, people of color and younger people are put off by the job. It can be hard for women, for example, returning to the workforce after having children to build up a book of clients their male peers have built over time. And younger people often want a salaried position because they aren’t necessarily in it to earn big bucks.
“Generation X and millennials want to make a difference and make an impact on clients’ lives. They don’t start with wanting to make a lot of money,” says Gabriel.
Dominic Corleto, a financial advisor at Wells Fargo Advisors and mentor to associates in the bank’s training program, says that when he began in the industry under the old variable-compensation model, many recruits dropped out because it was too difficult to make money. In fact, he is one of only four financial advisors who remained out of a pool of 110 recruits, he says.
“In legacy programs, people in the office had no vested stake in you. You were 100% on your own. In this program, you are expected to team up with a senior financial advisor. It accelerates your learning experience,” says Corleto.
Corleto is a mentor to Haley Thomas, an associate financial advisor at Wells Fargo Advisors in Eugene. Thomas says the two-year training program helped her prepare to work for the team without having the pressure of selling to clients. Thomas, who chose variable compensation over a fixed salary, says she would not have started at the bank if she couldn’t have joined the training program.
The Partners Group, a Portland insurance and wealth-management firm, dropped the variable-compensation model in favor of a salary-based model. This compensation structure engenders a more team-based approach to financial advising, says John Woolley, managing director of wealth management. “The winners in the advisory space will move to a team approach,” he says.
A big issue with having financial advisors nearing retirement is that clients of those advisors worry that they will have to trust another advisor they don’t know. Having more than one advisor dealing with a client helps ease that concern.
“We want every client to be known by two to three people. Not only does it help young advisors, it helps the client, too,” says Woolley.
The transfer of wealth from the baby-boomer generation to the younger generation will only accelerate over the next decade. By 2030 all baby boomers will be older than 65, according to the U.S. Census Bureau. This will expand the size of the older population so that one in every five residents will be retirement age.
The first of the baby boomers do more wealth planning than ever before, says Steve Holwerda, managing director at investment advisory firm Ferguson Wellman Capital Management. Having a team of advisors who can engender confidence in both young and old will be essential. “Everybody wants somebody they can relate to,” says Holwerda.
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