For most newer financial advisors, joining an established advisory team is the surest way to get a jump-start on their careers. However, new data reveal that it’s not only these newer – and, in many cases, younger – advisors who benefit from these arrangements as senior advisors also have plenty to gain by forming these partnerships.
According to Toronto-based PriceMetrix Inc.’s The State of Retail Wealth Management 2018 – the eighth annual edition of the report, published in April – 68 per cent of advisors under the age of 40 are working as part of a team to help build their experience and expertise. In turn, these teams, are seeing positive outcomes from their younger advisors’ contributions.
Namely, the report found that advisory teams in North America with “next-generation” advisors – defined as those born after 1965 – grow at a faster rate as well as add and retain more clients than firms that don’t have advisors of this age group on board. Specifically, the report points out that younger advisors are well-positioned to bring in new, younger clients to the business.
Anthony Edwards, a 62-year-old investment advisor at Leede Jones Gable Inc. in Courtenay, B.C., brought on a young advisor, Joss Biggins, now 22, to his EthicInvest team. (Mr. Biggins is assistant, associate and successor to Mr. Edwards.)
Mr. Biggins is already attracting new, younger clients to EthicInvest simply by generating leads while engaging with other people during social and recreational activities, Mr. Edwards says.
“He has a natural affiliation to 20-somethings and 30-somethings who are just kind of getting going in life, in many ways,” Mr. Edwards says. “There is no doubt he is attracting younger clientele.”
PriceMetrix’s report backs up the importance of adding younger clients to advisors’ books of business. In fact, the report points out that from 2015 to late 2018, clients born after 1965, which make up only 21 per cent of wealth-management firms’ clients – experienced an average compound annual growth rate of 6.1 per cent in their assets. In contrast, clients born before 1965 experienced an average compound annual growth rate of 3.5 per cent in their assets.
There’s another key reason besides growth why bringing in next-generation advisors makes sense: to ensure advisory practices have a continuity plan in place. Clients are more likely to stick around if an advisor has a trusted team member who can handle their finances if the senior advisor were to retire or pass away.
“If it’s not obvious that there is a natural successor who’s being trained to provide continuity to clients’ financial plans and investment portfolios, those clients will become more and more concerned about whether they’re with the right advisor,” says Andrew Marsh, president and chief executive officer at Richardson GMP Ltd. in Toronto. “I think the best advisors out there run their practice like a business. All businesses, when run well, have to think about continuity and succession planning, where the leader is always preparing the successor to take over.”
In the case of Mr. Edwards’ practice, he noticed that his clients are concerned primarily with providing financial security for their children – and are approaching a large intergenerational wealth transfer. Hiring Mr. Biggins as his successor was an opportunity to receive help managing those transfers and retain client families.
Adding a new face to the team has also provided a chance to broaden EthicInvest’s areas of specialization.
“[Mr. Biggins] will acquire certain professional designations that I have not either had the time or inclination to acquire,” Mr. Edwards says. “We’re stronger than either one of us would be alone in terms of service level and the ability to assist clients’ various needs.”
Typically, when choosing a next-generation advisor to join a team, advisors either look to fresh university graduates or advisors with emerging practices of their own. Both approaches are valid, says Sara Gilbert, business strategist and certified coach at Montreal-based Strategist Business Development.
The benefit of hiring someone right out of school is that the senior advisor has an opportunity to groom the younger person to mesh with the business’s model, culture and philosophy. Alternatively, hiring an advisor already in the industry often leads to growth by merging the two practices, an arrangement that can also lend itself well to succession planning.
But before making any serious commitments, it’s important to “date around,” Ms. Gilbert says, to see how the business relationship might pan out. This is an opportunity for advisors to get a sense of each other’s business practices, investment philosophies and approach to client service.
“Advisors sometimes make the mistake of looking at the competencies, knowledge and education of [a candidate] and not probing to see what their values are and where they see themselves in a few years,” Ms. Gilbert says.
Although not every next-generation advisor will become a successor, it’s still important to have a shared vision in order to decrease turnover.
In addition to complementary values, one of the main ways to keep next-generation advisors satisfied is to create well-defined roles and a clear path forward once they join the team.
“It’s difficult for an advisor who has built their practice with their own clientele to give up control,” Mr. Marsh says. “What I see a lot is an older advisor brings in a younger advisor with plans to grow professionally, and then the younger advisor gets stuck because the older advisor lacks the ability to hand things off.”
Establishing defined roles will encourage senior advisors to pass on certain responsibilities and will help manage expectations for new advisors in terms of their professional development and career timelines.