(This article was originally published Wednesday.)
By Matthias Rieker
When Megan Rowe studied finance at Georgia State University, she
though she might end up as a research analyst. But she wanted to
work with people as much as in finance.
That's where Cornerstone Advisors Group LLC came in. In May
2010, while still in school, she started a mentorship program at
the Atlanta financial advisory firm. The career "literally found
me," Ms. Rowe says, and it turns out "it was right up my
alley."
Now a graduate, she is preparing for her securities and
insurance brokerage licenses, with some product, portfolio and
customer-service training already under her belt.
The advisory industry needs a lot more stories like Ms. Rowe's.
Most veteran advisers are turning gray and getting ready to retire,
and there are too few young replacements. "The industry is really
facing a cliff," said Kim Guimond Dellarocca of Pershing LLC, which
provides custodial and other services to investment advisers.
"In 10 years...it's very possible that the demand for financial
advice is going to outstrip the number of qualified people who can
deliver it," said Ms. Dellarocca, head of practice managment at
Pershing, which is a unit of Bank of New York Mellon Corp.
(BK).
Pershing and FA Insight, a Tacoma, Wash., research and
consulting firm, estimates that the industry needs 237,000 new
advisers within the next 10 years to keep pace with market demand
as well as replace those retiring. An average of about $850 billion
in new investable assets will come available each year over the
next decade.
The firms' research counted 329,000 advisers in 2012; the
average financial adviser is 50 years old.
"There are about three junior advisers for every five lead
advisers" right now, said Dan Inveen, FA Insight's director of
research, illustrating the shortcoming the industry is facing. That
is "an insufficient replacement pool for those soon-to-be-retiring
lead advisers," he said.
Big firms have long trained advisers and some, like Bank of
America Corp.'s (BAC) Merrill Lynch, have expanded the program in
recent years. The three largest brokerage firms, Morgan Stanley
(MS), Wells Fargo & Co. (WFC) and Merrill Lynch hired a
combined total of almost 3,300 trainees this year. They currently
employ almost 46,000 advisers.
Smaller firms are starting to realize the challenge. "When I
first started to go to financial planning association meetings 20
years ago, I was the youngest person in the room," said
Cornerstone's president, John Locke, who is 47. "Today, in many
cases, I am still the youngest person in the room. There is no one
behind me. It's frightening."
He set up his firm's mentorship program three years ago. It is
designed for would-be advisers who start while still in college,
and offers roughly five years of training.
Ms. Rowe heard about it from a sorority sister. She started with
administrative jobs, then moved on to schedule client meetings, do
billing, help to set up accounts, and follow up with clients on
brokerage sales.
After graduating from Georgia State earlier this year, she
started sitting in client meetings. In biweekly mentor meetings
with Mr. Locke, she learned industry basics like the differences
between classes of mutual fund shares and working with Individual
Retirement Accounts.
In the third year his trainees participate in discussions about
a client's financial goals. "No selling at that point, pure
planning," Mr. Locke said. The pressure to produce revenue comes
only as the mentorship ends. "At the five-year point, they can fly
on their own," he said.
Brent Brodeski, the chief executive of Savant Capital
Management, a Rockford, Ill., investment advisory firm, designed a
training program that grew out of the firm's summer internships,
mostly for local college students.
Early next year, three trainees will spend about two years in
what he calls an "adviser accelerator program," rotating through
areas of the firm's businesses like financial planning, investment
research, trading and operations. The training continues in junior
adviser positions, where trainees gain experience with clients.
Three to five years is an ideal time period to establish to get
the next generation fit to give financial advice, said Craig
Pfeiffer, the founder and chief executive of Advisors Ahead LLC, a
firm that prepares students for a career as financial advisers.
Too many big firms "don't have the patience for that," he said.
"In financial services, for some reason, we throw them into the
pool in a sink-or-swim basis."
Advisers in training at large firms can be expected to produce
at least some revenue after between five months at Morgan Stanley,
seven months at Merrill Lynch, and 29 months at Wells Fargo.
Mr. Locke and Mr. Brodeski said the training programs pay off
for the firms even without the interns generating a book of
business. Mr. Locke decided in 2011 to double his firm's revenue in
five years and, thanks to the help from his trainees, he now
expects to reach the goal one year earlier. That's because the
trainees have helped free him from administrative tasks so he can
spend more time on clients.
"If I hire three or four of those individuals, it'll cost me
$200,000, $250,000 all in." Mr. Brodeski calculates. "I am going to
get way more than that value through higher productivity of my
senior people."
Write to Matthias Rieker at matthias.rieker@dowjones.com
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