It’s no surprise that a strong stock market is good for the financial planning industry. As markets rise, so do portfolio values. And since financial advisors are typically paid a percentage of assets under management, that means more compensation. In fact, the demand for financial advisors is so great that banks are finding it difficult to find experienced brokers to work for them!
A recent CNBC article reported that financial advisor has become one of the ‘toughest jobs to fill’.1 Considering the median salary of financial advisors is nearly $90,000 with a projected growth rate of 30%, you might find it surprising there is a shortage of advisors.2,3 We look at a few reasons why this may be occurring.
Why the demand for Financial Advisors?
Return of the Mom and Pop Investor
Some believe the return of the retail investor has strained the supply of brokers. Many retail investors were burned badly by the tech bubble and the Financial Crisis and never returned to the markets-until now.
We are seeing signs that suggest Mom and Pop are returning in droves. The Russell 2000 small-cap index, the playground of the retail investor, has seen the biggest gain (over 15%) since the Trump election.
Further, media coverage of ‘Dow 20,000’ has undoubtedly brought many investors back in. It’s only taken about a month for the market to surpass 21,000 from it first breach of 20,000. This is a classic sign of retail pouring back in.
And the recent rise in interest rates, as well as fund flow data, shows they are shifting out of safer bond funds and pouring into equity exchange traded funds.
Another reason for the shortage is the steady exodus of talent from traditional brokerage firms towards Registered Investment Advisor businesses.
These ‘RIAs’ have shot up all over the country and now total nearly 33,000 separate firms as estimated by Meridian-IQ.4
This trend has been going on for over a decade and is partially in response to what many brokers felt was an unfair revenue split between their employer brokerage firm often the popular, bulge bracket banks.
The concept of fiduciary responsibility has also influenced the decision. Many advisors feel that being independent gave them the ability to better serve their clients. Many custody their client’s funds with discount brokerage firms such as Charles Schwab or TD Ameritrade. Subsequently, some report cost savings for their clients of as much as 40%.5 And conflicts of interests are also reduced such as broker-owned mutual fund recommendations and new issue offerings (preferred stock, equity IPOs, overnight secondaries).
Of course, by leaving these firms, many give up certain advantages-namely brand recognition, potential litigation support, a bevy of structured products to sell and access to desirable syndicate deals. Now that so many brokers have left the so-called ‘wirehouses’ they are scrambling to rebuild their profitable wealth management departments.
Another source of advisor demand is coming from automated money managers, also known as “robo-advisors.” These fintech companies, such as Betterment and Personal Capital, originally provided completely automated, algorithm-driven money management.
This worked fine in calm times, but when markets get volatile, clients prefer the security of speaking to actual advisors. In response, many of these firms have tweaked their business models to also include advisory services from licensed financial professionals.6
Finally, banks are having an especially difficult time finding qualified advisors outside major cities. As a result, firms have developed a strategy to keep costs low, known as ‘nearshoring’. This involves moving resources away from costly metropolitan areas like New York, San Francisco and Chicago and recruiting talent in regional locations including Nashville, Salt Lake City and Jacksonville.7
Deutsche Bank has set up a major campus in Jacksonville while UBS has done the same in Nashville. This trend is good news for financial career options outside of major metropolitan areas, especially for aspiring financial advisors.
The Next Generation Financial Advisor
If this talent shortage has propelled ‘financial advisor’ to the top of your financial career options list, that’s great. But you need to realize that today’s financial planner is not your father’s broker. The days of an 18-year old kid passing his Series 7 and recommending hot stocks for fat commissions is over. Today, client’s needs are greater than ever.
The advisor formulates a financial plan designed to meet the future needs of clients including college savings, purchasing a home and retirement planning. There are literally thousands of financial products today that can be utilized in the effort to meet these challenges.
The financial advisor may work for a bank or choose to join an RIA. If they work for an RIA they had better get used to working in teams. While the advisor may handle the actual investment decisions for the client, they will definitely be collaborating with other professionals in the RIA. These typically include an attorney, tax professional, and possibly an insurance agent (if the advisor isn’t dual-licensed to sell both securities and insurance products like variable life annuities).
The team could be especially large for a family office where complicated legal and estate planning needs (asset protection, legacy and succession planning, etc.) become necessary. These needs are relatively straight-forward unless your net worth is over $5 million.8
Clients feel comfortable with their advisor having a high level of financial knowledge. If you don’t have some type of expertise to add to the RIA group, it might be tough to join one. You should seriously consider pursuing an MBA, an online Masters in Finance degree or one of the Big Three financial designations (CPA, CFA or CFP).
Instead of deciding between an MBA vs. CFA, some professionals increase their marketability by tackling both. There are some graduate programs with curriculum that helps prepare students for these certifications. As a CFA Program Partner, Creighton University offers an online Masters in Investment Management which helps students prepare to take the CFA exams.9 A significant portion of the program’s curriculum comes from the CFA Program’s ‘Body of Knowledge’.
Granted, there are financial positions that don’t require a Master’s degree, CFA or a CFP but they are typically in-house financial planners at retail banks. This is a high stress, undesirable way to build up a book. These positions have higher turnover rates due to low job security and tough quotas to meet. If you are going to try and become an advisor at major bank branches, you want to try and leapfrog the advisor role and aim to be the manager. This may be accomplished by extensive experience in the industry or with an advanced degree such as an MBA in Finance that has prepared you for the leadership role.
So if you are looking for a well-paying career with impressive growth metrics, consider becoming a financial advisor and help serve the millions of Americans that will need to begin their investing careers or those entering retirement.