The efforts of individual advisers have driven growth in the financial services industry for decades. Is it too controversial to suggest that we are an industry in decline? Or are we simply witnessing an evolution or changing of the guard? Let’s look at some facts.
An aging workforce. The average age of advisers is older than 50 years old. With increasing age comes a tendency to kick back and move into what we refer to today as a lifestyle practice. Instead of focusing on growing the business, advisers start putting more energy into their own personal interests. Of course, there’s nothing wrong with that—advisers have worked hard to achieve a certain level of success, after all. But it does affect the industry dynamic. Because, as Lou Holtz said, “You’re either growing or you’re dying.”
A shrinking job pool with unrealistic expectations. At the same time, there are clearly not enough new advisers coming into the industry; the ranks of financial planners are dwindling rather than growing. The fact that young advisers often get a bad rap doesn’t help. Senior advisers sometimes label them as “typical millennials” who don’t want to put in the time or energy to build their businesses organically. But think about it—as new advisers come into the industry, what do they see? More and more lifestyle practices. Their role models have a life outside of work, and they want that, too—from the get-go. What they don’t see is the work their role models put in when they were in their 30s and 40s; instead, these younger advisers often want to grow through the expedient of buying a business for sale.
Without organic growth, however, the only clients served are those who are passed from one generation of the business to the next—and obviously those individuals will age and pass away. Further, although many advisers seek retiree and pre-retiree clients, the reality is that individuals who are still accumulating wealth—especially if they stand to inherit assets from their aging parents—are a much greater prize. But winning that prize requires organic growth, which is something the next generation of advisers is uncomfortable with and unprepared for.
Industry challenges. Finally, add in all the changes affecting the industry that we read about daily—fee compression, robo-advisers, increasingly complex products, and the Department of Labor’s much-anticipated fiduciary rule—and you can see that it’s certainly not easy to be an adviser today.
If you were in your 20s or 30s, would you be inclined to enter an industry facing these challenges? Let’s not forget the general public’s rather unflattering opinion of our business as well. With all of these obstacles, you can begin to understand why our industry might well be in decline.
On the one hand, this is a pretty dismal outlook. But I think it also speaks to the need for us to evolve. We’re already seeing an increase in the formation of ensemble and enterprise practices that are large enough and sophisticated enough to provide a training ground for new advisers, respond to regulatory challenges, acquire existing businesses—and even grow their client base organically.
Managing Principal of Practice Management
Commonwealth Financial Network