Firms with Younger Advisors Are Growing at a Faster Clipby
Firms that already employ the so-called “next generation” of advisors are on the cutting edge of business growth. And those that don’t, well, they best get there or be left behind.
That’s the gist of new research by InvestmentNews and TD Ameritrade Institutional, The Rise of the NextGen Adviser.
But, wait: Only 21 percent of the current crop of financial advisors is under age 40. So, what’s the big deal about hiring them? Because firms that have are growing faster than those that haven’t, the study states.
Between 2012 and 2014, assets for firms with “NextGen” advisors increased an average of 20 percent per year, according to the study. Firms without that age group on staff saw an 11 percent increase in assets.
What’s more, 61 percent of survey respondents said the biggest reason for hiring NextGens this year is to improve client service, while 50 percent said they wanted to attract younger clients.
So, it’s no surprise then that 21.5 percent of firms surveyed said they intend to hire younger advisors this year, compared to 11.1 percent last year. The threshold for firms to add the new advisors is at least seven full-timers, according to the study.
The study notes that the rise of and need for younger advisors dovetails with two key industry changes: more advisors are employees rather than owners, and the fastest-growing firms share a structure of delegating operational and administrative duties.
“The owners, by not acting as the primary contact on all accounts, have the ability to focus more on business development and servicing a firm’s top clients – the two core elements frequently fueling firm growth,” the study states. “This, of course, positions the firm for immediate returns on its human capital investments, but also sets the firm up for accelerated growth and an increased overall client base.”
The duty list for NextGen advisors on staff includes the following:
- Technical and support work, such as data entries and financial plan drafts, research, compiling reports, and helping with other projects to assist the lead advisor or team.
- They serve in more of a back-office position than client-facing.
- Work typically involves teams with multiple advisors who then groom the younger advisors to handle their own accounts and clients.
- About 20 percent of NextGen advisors also are Certified Financial Planners with four years of experience at an advisory firm.
- One NextGen advisor generally supports three or four advisors.
Base salaries for NextGen advisors rose from between a median of $50,000 and a third quartile of $60,000 in 2013 to between a median of $53,637 and a third quartile of $60,438 last year, according to the study.
The following factoids go to the bottom line about firms with seven or more full-timers, plus at least one NextGen advisor, compared to those that don’t:
- Revenues of $5.6 million at the end of 2014, compared to $4.2 million for firms without a younger advisor on board.
- Gross profits of $3.191 million, compared to $2.638 million.
- 2015 income per owner of $700,000, compared to $597,000.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.