Declining Advisors Doomed to Worse Than Death

Financial Planners

A recent study by Dimensional Fund Advisors has identified a decline in advisors as the second reason RIAs are losing business.

In each of the 12 years of DFA’s Global Advisor Benchmark Study, death was cited as the top reason advisors lost wealth, up 20% annually, according to Catherine Williams, Director of DFA Practice Management. I will go up. But in the past three years, nearly a fifth of her RIAs reported losing an advisor, and that number is on the rise.

“Employers should pay close attention to this, because we’re talking about double suffering,” Williams said. “Not only are you losing talent, you’re also taking customers. It’s a painful proposition.”

At DeVoe & Co.’s annual Elevate Conference in Nashville last week, Williams and other experts discussed the importance of developing and retaining talent in an industry that is short of its most valuable asset. Talked about sex.

“People are the toughest part of our business,” said Jim Cahn, chief investment and business development officer at Wealth Enhancement Group, which has $67 billion in assets under management. “This is the lifeblood of our business and it’s really hard. We can’t hire advisors. That’s where we started doing M&A. You either grow them or buy someone else who developed it.” You have to, you can’t hire an advisor.”

Much of the focus at the three-day event was on next generation talent, equity and succession. Millennials and younger generations now make up more than a quarter of financial planners in the United States, and more than half of all CFP advisors are under the age of 50, according to the CFP Board.

According to data presented by David Canter, president of Bluespring Wealth Partners, CFPs represent only 96,000 of the approximately 330,000 financial advisors in the U.S. RIA space.

“For the first time in history, the number of CFPs under the age of 30 has matched the number of CFPs over the age of 70,” he said. “It may not sound great, but think about the training, exams and apprenticeships it takes.”

All the experts who spoke on the subject said companies that want to attract and retain the next generation of talent they want need to establish clear career paths for those employees. And we expect more employees than ever to be given the chance to own the pie.

“They want to know there is an opportunity for growth and advancement,” said Martin Lelis, chief people and management officer at Mercer Advisors.

“You need a clear job structure. It’s just a very basic way of writing a job title: job title, description, roles and responsibilities,” she said. “Very clear promotion criteria – how do you go from step A to B to C to D? Then you need to evaluate your performance metrics.”

Relis recommends reviewing performance at least twice a year and said he doesn’t think it’s wise to tie promotions to tenure, preferring instead to reward good work in real time. .

“It’s very important to feel that you have the ability to continue to succeed and get better and get things done,” she said. “And that engagement ultimately leads to retention of top talent.”

Williams said equity ownership is becoming increasingly important at all levels of the company, including in non-revenue-generating roles. Noting that capital does not necessarily confer decision-making authority, he suggested that companies be clear up front about whether stakeholders have meaningful seats at the table.

“Our data shows that well-built, high-performing companies have much higher employee retention and significantly higher growth,” she said.

“I can’t stress enough how big a portion of the compensation this is,” Lelis said. “There are more programs that don’t require buy-in, and this is becoming more widely shared.”

DeVoe & Company founders David DeVoe and Williams both said most companies would prefer to sell shares to employees rather than include them as part of compensation packages. rice field.

“We want them to write checks,” said DeVoe, distinguishing between getting paid for individual labor and benefiting from the success of a collective enterprise. “The ability to distinguish between them is important.”

Experts say many of the top G2 and G3 advisors are looking for more meaningful ownership opportunities, whether that means in-house successors they can join, or leaving to start their own operations. It is said that it means whether to do.

Williams said only a quarter of companies in the DFA Benchmark study have clear succession plans. He cited procrastination as the main reason, followed by a desire to sell internally amid uncertainty over which advisors would take over the reins and how the money would be put in.

As companies grow and become more complex, it’s becoming more common to shift to groups of G2 or G3 employees where owners can share costs and responsibilities, she said.

According to a panel of experts from credit and lending institutions, equities could play a useful role in a company’s gradual transition, and while there are creative ways to solve financing problems, internal successions In many cases, it means a significant discount on the valuation, he said.

“There’s a lot of succession going on internally,” said James Hughes, head of investment advisory lending at Live Oak Bank. He said part of the bank’s loan portfolio has risen to 40% in recent years.

“Often, companies don’t consider external valuations. They’ve created some internal formulas that end up discounting,” he said. “But this is a program that has been put in place to work well for everyone involved.

“We need discounts,” he added. “If you really look into the details, at multiples of 10x or more, the dividends will not be able to cover the after-tax debt service.”

“We’ve seen creativity within the company that allows perhaps 9x, 10x, 11x, 12x multiples to work,” said Dustin Mangon, Investment Advisor Program Director at PPCLOAN. “It may take 12, 15 years to finally pay off the debt. But this is an alternative if he needs to discount the business by 20% or 30%.”

Alicia Chandler, president of Oak Street Funding, said lack of communication between owners and the next generation of employees has been another major obstacle to a successful transition.

“Founder’s Syndrome,” he says, occurs when owners continue to withdraw their promises of internal sales.

“As time goes on, questions arise, like whether it will actually happen,” she said. “Those people may become disillusioned. They may want to leave.”

“G2 could get impatient and leave,” Hughes agreed. “There are many examples of conversations where they are frustrated, but then I see posts on LinkedIn where they have moved or started their own company.”

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