The future will get harder for wealth management firms because they need to attract new participants in wealth management as clients and as a career path.
Despite rising global wealth, the industry may face an uncertain future when older generations pass on. Will their children and grandchildren be clients, too? How will the firm attract younger clientele?
And as older wealth managers retire, will there be enough young talent to replenish the ranks?
Cerulli Associates predicts that more than one-third (35%) of financial advisors will retire in the next 10 years.
In addition, only a quarter of today’s advisor population is under the age of 40, according to the CFP Board, and of this, just 10% are under 35, Cerulli reports.
A survey from the Kathy Freeman Company, an executive search firm, two-thirds of executives in the wealth management, asset management and fintech industries continue to "lack a fundamental understanding of how to attract the next generation of employees."
It's hard enough dealing with a lack of young talent.
It's even harder when the financial services industry has a poor reputation among millennials, many of whom had their first introduction to the industry "through a lens of untrusting and finger-waving news media and pop culture."
So even before landing the young talent, wealth management firms are tasked with promoting the industry as a whole to support a future crop of qualified applicants.
As the older clientele transfers wealth to the next generations, wealth management firms should not assume those inheriting the wealth will be clients, too.
Per InvestmentNews, 66% of children fire their parents' financial adviser after they inherit their parents' wealth, and the lack of a relationship is the number one reason advisers lose assets when clients leave their wealth to their children.
Despite the younger generations leaving, only 20% of advisers are targeting younger family members of their clients, according to a survey in from Corporate Insight.
Fintech startups offer an increasing number of investment products, and their digital-first platforms suit the millennial investors, who “are far more likely to feel that some of the most cutting-edge technology tools are basic requirements of a service offering, rather than a ‘nice-to-have,’ ” according to a 2017 Accenture report on millennials and money.
These startups provide low-cost fees and companies like Acorns, for example, can reflect millennial values by offering impact-investing products.
“The industry’s case is: ‘Oh yeah, when [millennials] grow up and have money they’ll come running' (to the old-line wealth-management giants). I don’t think that’s a safe bet—not even remotely.” -Matt Harris, a managing director at Bain Capital Ventures.
If fee compression isn't bad enough, a lack of wealth managing talent and a failure to reach out to younger clientele will add to firms' long-term financial challenges.
Wealth managers should consider a few ways to ensure their competitiveness and financial good standing:
If the older clients are planning to transfer wealth to their kids and grandkids, start developing relations with the younger beneficiaries. The lack of a relationship with the advisor is the main reason why the younger ones switch firms.
Also, wealth managers can appeal to younger demographics by adopting a digital-first strategy, giving clients instant access to the investment performance and reports from their smartphones and tablets.
Wealth managers should consider approaching colleges and universities, finding potential talent through professor referrals and campus career fairs. These could be great ways to hire interns and entry level employees.
LinkedIn Recruiter is another useful tool for wealth managers. The service makes it easy to find individuals with the education and skill sets in any geographical area they're looking for.
The millennials generally place great value on work-life balance, and they want to work for companies that are seen as socially responsible.
In addition, millennials prefer work that makes a difference in people's lives.
Firms should "frame the position as helping clients obtaining their goals, versus making the job about fulfilling the firms' goals," said Kathy Freeman, founder of her executive search firm.
The average advisor "is 62 and comfortable", according to WealthManagement. After achieving success and stability in their own careers, the advisors are less interested in putting in the time and effort to train younger talent at this point in their lives.
The lack of support, in addition to a lack of understanding millennial values, could result in less skilled employees or it might push young people out of the industry.
Wealth managers can use robotic process automation for advising, trade processing, and client report generation, among other tasks. By automating certain tasks, advisors can serve more clients while focusing on work that is better off with a human touch, be it a comprehensive financial planning strategy or availability for in-person or over-the-phone meetings with clients who want the human interaction.
RPA can speed up processing time while helping to increase data accuracy, efficiency, and cost savings.
One of our recent blogs discusses further how RPA benefits investment managers.
Outsourcing is another way for wealth managers to reduce their costs while accessing talent as they need it and where they see fit.
Firms can outsource the following areas:
Wealth management challenges will certainly face firms in the future, whether it's from talent shortages, loss of clientele, and new competition going for the millennial market.
These organizations face a unique challenge in not only attracting talent to their organization, but also in promoting the financial services industry as a reputable field to work in.
These challenges could weigh heavily on companies' bottom lines, unless they develop strategies to attract clients and talent. They can also use RPAs and outsourcing as other ways to cut costs and fill in the talent gaps.
Wealth management firms that rise to the challenge will see success, and the bottom line will reflect it.