The Future of Financial Services: Why and How to Attract, Cultivate and Retain Millennial Advisors

Transcription

1 The Future of Financial Services: Why and How to Attract, Cultivate and Retain Millennial Advisors The financial advisory profession is both aging and shrinking, a trend that indicates the future of the industry relies on younger generations. Most financial advisors today are in their fifties and sixties, which puts them close to retirement. This means that Millennial financial advisors, a generation that is often misunderstood and misconstrued, will soon be tasked with sustaining and evolving their profession. By Bill McManus, CIMA Director, Strategic Markets In April 2016, Hartford Funds convened a small group of Millennial financial advisors for a lively roundtable discussion on the professional challenges they face. What we learned is this: Since Millennials are both the future leaders and clients of the financial-services industry, firms will need to adapt to stay relevant. The following paper details the best practices that emerged during our Hartford Funds Millennial Advisor Roundtable. 1

2 Millennials: Perception vs. Reality Millennials are often stereotyped as recent college graduates who live at home, have little to no work experience and are unhealthily attached to mobile technology. However, by definition, the Millennial group, also known as Generation Y, is comprised of people born between 1980 and 2000, and they number around 70 million strong. 1 Given the age range and the sheer number of the people in that generation, some Millennials might fall within the general perception, but many do not. Few commonalities can be expected to be shared by a 36-year-old, who might have a spouse, children, a home, and 10 or more years of work experience, and a 16-year-old who presumably lives with their parents, is too young to vote and whose future plans include getting their driver s license and graduating from high school. The divide between older Millennials and the typical Millennial caricature was evident throughout the discussion. When asked what comes to mind when they hear the term Millennial, roundtable participants agreed that they did not think of themselves as members of that generation. When I first heard the term being used, I thought of 20-year-olds, and so I thought, well, I m not a Millennial, one participant said. Another participant agreed that she also felt removed: My sister is 10 years younger than me, and I say to her, that s you. 70 MILLION MILLENIALS BORN BETWEEN 1980 & Given this disparity, it is essential that financial advisory firms take deliberate measures to identify top-tier Millennial talent and treat them as such, as opposed to viewing them as part of a group that is often stigmatized in the workplace, news media and beyond. Next Gen Recruiting When asked about hiring Millennials, roundtable participants indicated that the general cohort might feel a disconnect with the financial services industry, which could make recruiting the next generation of advisors a difficult task. Because of this, advisory firms need to evolve their message to attract and hire top Millennial talent that may be drawn to newer, mission-driven industries. One challenge in recruiting Millennials may stem from their formative financial-services experiences. One person in the group said, [In 2008] these kids were in their teens and old enough to recognize finance a little bit, maybe see the struggle their parents went through, losing money. I wonder if more kids are trying to stay away from this business because they have that stain [on their memory]. Another roundtable participant brought up that the age group might also be typecasting the financial advisory business. She said, The images that come to mind are that it s traditional bricks and mortar, it s men sitting around in suits. It s not as hip or edgy as some other potential work environments. [But] not everyone is an investment banker who participated in what you saw in The Big Short and not everyone is Leonardo DiCaprio in The Wolf of Wall Street. In reality, according to roundtable participants, advisory services can look very different from what Hollywood suggests. There are so many components to financial planning, said one roundtable participant, because it s life. The images that come to mind [for Millennials] are that [finance is] traditional bricks and mortar, it s men sitting around in suits. It s not as hip or edgy as some other potential work environments. Firms need to make sure that they are actively rebutting potentially negative preconceptions of the financial industry as they attempt to attract new, young talent. When recruiting Millennials, it s important to go beyond the numbers side of financial advice. Stress the mission, vision and purpose behind the firm, demonstrating that you re dedicated to clients and are prepared to counsel them in times of crisis, in times of fortune and at all times in between. 1 Engaging Across the Ages, Joseph Coughlin, PhD, the MIT AgeLab 2

3 Mentoring Millennial Advisors Roundtable participants opined that it is also important for firms to focus more energy on helping them learn and develop. One roundtable participant said, I do a great deal of interviewing for our firm at the associate level, and what they are all looking for, really, is a mentorship... [They re] not necessarily asking what the day-to-day responsibilities are, but [they re asking] how can they get the exposure that they need to make the next step. The roundtable participants also agreed that hands-on education needs to be an integral part of firm culture, especially when it comes to the newest associates. So much of [what we do] can t be learned in college, said one participant. It comes from experience. Other roundtable participants agreed, with one saying, If they have the passion for it, if they have the drive, then we can teach them everything else. Many young professionals want to become and will become the next generation of leaders, and the Millennials who have that ambition will expect to be developed. Once a solid recruit has been made, advisory firms should focus on home growing and retaining their Millennial talent What [Millennials] are all looking for, really, is a mentorship. by building robust mentoring programs. Millennials can gain the professional grooming they seek, and the firms leadership can feel more confident in the future of their business. Making Room for the Millennial Mentality The consensus of the roundtable participants was that financial advisory firms will also need to acknowledge, if not adjust to, the ways younger Millennials think and work. Having been reared on wireless internet, and remote accessibility, this generation is accustomed to flexibility and adaptability in their lifestyles. The whole work-life balance concept has evolved... When I walk around the office at six o clock, it s director level and above there, and not the junior kids, and it used to be the opposite... it s just a different mentality, shared one roundtable participant. Thanks to ever-advancing technology, Millennials may not feel compelled to stay at the office past 5:30 p.m., and may in fact find more reasons than not for why their physical presence is unnecessary. However, just because this younger generation s style might differ from tradition, it shouldn t mean that they are less productive. Kids that we re seeing coming out of college... they live in a world where they can , text...or just not have to be in front of the person, said one roundtable participant. Another participant chimed in, saying, However [they] need to do it, [they have to] put in the time. It s not an easy industry, and you can make your own path, but [we] want to see that commitment. Traditional work environments are changing, and in 10 years, a workweek might look wildly different than it does today. Relaxed dress codes, flexible schedules, open offices and greater reliance on technology are becoming more common and Millennials might be entering the workforce expecting more businesses to uphold such contemporary standards. Firm leaders who want to make sure their business outlives their current leadership may want to consider adopting some of these practices or finding ways to adapt their culture and expectations to make room for the mindset of the new generation. 3

4 Overcoming Age-Related Challenges All of the roundtable participants agreed that while firm culture might evolve as more Millennials rise in the ranks, one thing will not change, and in fact is becoming even more significant: financial planning is an industry in which relationships are paramount. The relational aspect of the business could be the biggest challenge for Millennials, not only because of their widespread usage of technology, but also because older clients might be hesitant to take advice from someone they perceive to have had less life experience. Roundtable participants named specific tactics that worked for engaging older generations of investors. I try and share a little bit about myself with a lot of my clients, said one roundtable participant. For example, she said, when she had a baby, she was open about her experience and shared milestones with her clients. As a result, she said, I find now that my clients feel like they know me a little better, regardless of how old they are. Another roundtable participant said that he uses his family to relate to clients. He admits to older-generation clients that he may not know first-hand what worries them, but he does understand: [I tell them] While I personally haven t experienced what you re going through, I ve gone through it intra-family and have been a part of the decision-making process. To keep a firm going strong, senior advisors should commit to coaching Millennial advisors, helping them find key points of connection that they can leverage with older clients to build effective trust and relationships. Engaging the Next Generation of Investors Just as Millennial advisors are the future of the industry, Millennial investors are future wealth holders, so it is also important that advisory firms recognize the opportunity to engage them through their Millennial advisors. While Millennials who are just starting out may not have much wealth or complex financial needs, they will, said roundtable participants. That s why it s so important to get a head start on pursuing them: You don t really care if they sign up today or a year from now. If they re a client five years from now, that s what the goal is, said one participant. Another participant brought up the point that while Millennial investors may not be profitable to advisors today, they present a low-maintenance opportunity to build out a pipeline of clients: Generally speaking, he said, it s not a big commitment. You just want to make sure that they know that you re the guy that they re going to go to when they need something. The common interest thing is huge, said one participant. The roundtable participants shared their thoughts on how financial advisors can leverage common interests when targeting Millennial clients. Just as Millennial advisors need Regardless of how old you are, at the end of the day, people want to do business with people they like. to find ways to relate to older clients, so do older and younger advisors need to find ways to relate to Millennial investors. One participant shared that he held a fitness boot camp, during which no business was discussed. After the event, though, he followed up with attendees, a tactic that ultimately landed him new clients. Other roundtable participants mentioned similarly casual, enjoyable events, such as wine tastings, cooking classes and a volunteer outing or charity benefit. Advisory firms should actively source ideas from their Millennial advisors for effective techniques for attracting and connecting with the next generation of investors. In addition, they should free up time and open up incentives with this same group to begin building a pipeline of relationships with Millennial investors. 4

5 Breeding the Next Generation of Leaders In addition to recruiting and cultivating top-talent Millennial advisors and scaling business by prospecting younger clients, the vitality of any advisory firm relies on how leadership makes succession plans. It is critical to engage young financial advisors around succession planning in an effective manner. Roundtable participants shared a variety of techniques that firms or advisor teams can use to engage them in succession planning. Start mentoring and identifying those future partners early, said one roundtable participant. You have to start thinking about it 10 years in advance, said another roundtable participant, or else by the time that you re ready, you re just not going to be in [a good]position. To properly groom younger advisors for leadership roles, said roundtable participants, firms should make sure that they are involved and play a role from day one. The key is continuity, said one roundtable participant, who made the point that current and prospective clients want assurance that after their advisor retires, they will still receive the same service level going forward. The way one participant said his firm is ensuring continuity is by appointing an older and a younger advisor to each account. In doing so, the younger advisors are up to speed and visible, and the clients know who the younger advisor is and who will continue the relationship should the older advisor retire. $30 TRILLION will be transferred to the younger generations over the next several decades 2 Succession planning, according to the The key is continuity. roundtable Millennial advisors, also includes being transparent about the possibility and requirements of becoming a partner. [It s] not just dangling the carrot, but laying out the path of how this is going to work... and making it financially attainable, said one roundtable participant. Another agreed, saying that current partners should be clearly telling key firm talent how they can get on the partnership track and what being a partner entails. According to the roundtable participants, it will not be enough to make the empty promise that anyone can become a partner the next generation of leaders needs to know how. Firm or team leaders need to communicate to the younger generation what steps, actions and milestones will be necessary in order for them to become partners, and to support their progress and development in this direction from the very start of their tenure. If a firm does not do that, said the participants, then they risk losing advisors and potentially their book of business as well. 2 Source: Accenture. The Greater Wealth Transfer Capitalizing on the Intergenerational Shift in Wealth, 2012, most recent data available 5

6 The Evolution of Financial Advice When discussing the future of the financial services industry, roundtable participants suggested that Millennials will play an integral role. According to roundtable participants, the industry itself is evolving with technology, and Millennials could be the key to helping advisory firms prepare to keep up with the times. Technology is ramping up so quickly, said one participant, I think there s going to be a big push for efficiency and embracing technology. Another participant agreed, saying, The way people access us is certainly going to change, and it ll be interesting to see which firms can change with it. Given that Millennials were raised with technology and are likely to be more technologically fluent, having them on staff could make it easier for firms to transition, stay relevant and not get left behind when new trends become more common. The way people access us is certainly going to change, and it ll be interesting to see which firms can change with it. the value add [is]. He predicted that financial services will place a greater emphasis on services and personalization and will become less about products and sales. That means, according to another roundtable participant, that we ll just have to have a really strong value proposition as to what we provide our clients. The roundtable group also agreed that, over time, financial advisors will have to be more flexible and able to wear multiple hats, traits that might be more typically associated with Millennials. I think that most advisors should get a Psychology degree, one participant said half-jokingly, [Because] more often than not I m doing that type of work with people. Other participants mentioned that the 9-5 workday might also change, and financial advisors may have to be more accessible by fitting into their clients schedules, and not the other way around. While technology can drive efficiency, roundtable participants still anticipated that the consultative nature of the financial advisory role will only become more prevalent. According to one roundtable participant, [Our industry] is going to be more content and engagement driven, because that s where It is likely that today s Millennials will be a valuable asset for firms in the future. Firms should actively solicit the advice and guidance of young talent in evolving their firm to improve efficiency and differentiate themselves in the marketplace. Conclusion In the financial services industry, Millennials are what s next. They are both investors and advisors, which means that advisory firms that hope to thrive and grow in the decades to come will need to take measures to make their practice more engaging for this next generation. Despite the stereotype of Millenials, this group will carry the industry into the future. Today s financial advisors and advisory firms should put aside preconceived notions regarding Millennials and focus more energy on attracting Millennials, developing and cultivating them into effective advisors and retaining them by communicating a plan for their and the firm s future. 6

7 Key Takeaways 1. When recruiting Millennials, stress the mission, vision and purpose behind the firm. 2. Focus on home growing and retaining Millennial talent by building robust mentoring programs. 3. Find ways to adapt company culture and expectations to make room for the mindset of the new generation. 4. Commit to coaching Millennial advisors, helping them to find key points of connection that they can use to build relationships with multiple generations of clients. 5. Source ideas from Millennial advisors for effective and efficient techniques for to attract and connect with the next generation of investors. 6. Communicate to the younger generation what steps, actions and milestones will be necessary in order for them to become partners. 7. Solicit the advice and guidance of young talent in evolving the firm. 7

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