Aug
16
2010
Decline in Advisors Expected to Continue
The number of financial advisers in the country fell from 314,000 in 2004 to 310,000 at the end of 2008, according to a study by Cerulli Associates. Given that the average financial advisor is 49 years old and that 14 percent of advisors are over 60 years of age, the decline is expected to accelerate as more brokers reach the age of retirement. “As the Baby Boom advisers retire, the financial advisory industry runs the risk of not being able to meet” investors’ demands, analysts at Cerulli wrote.
The perceived problem is the lack of young trainees- paraplanners- assistants- who want to take over for these retirees. But there are other critical mega-trends, beginning with the definition of “financial advisory industry.” Traditionally, that has meant a human being who manages investments. But the term must be expanded to include any media from which an individual investor obtains information upon which they rely for investment decisions. Many people- for good or bad- will get advice from a television show or magazine or online web site. For them, in their mind, the financial advisory industry is alive and well.
But let’s look at the traditional method of delivering financial advice. Why aren’t more individuals called to this profession? The first reason may be the general distrust in our financial system. With all of the negative publicity over the past few years, ranging from Madoff to mortgage brokers, is it any surprise that young people are opting for a career path that is less littered with problems?
Another consideration is that most financial advisors “came of age” during the introduction of financial planning and the accompanying boom in the mutual fund industry. Previously, the American public saved their money in banks; now, they invest through 401(k) plans and mutual fund accounts. Thus, for people younger than 40 years old, investing isn’t something new. They are comfortable with it and feel they can do it themselves, without the need for a financial advisor. And if they don’t see the need for an advisor, why would they choose that career path?
Finally, technology has impacted the investment world significantly. In the 50′s and 60′s, people who did invest would wait until they read their newspaper the next day to see how their stocks performed. Brokers were valuable simply because they had access to information not readily available to the public (e.g., company conference calls were restricted to analysts). But in today’s age of instant information, computers are a necessity. Younger investors are more apt to access a database than rely on a human being for financial advice.
Does this mean the death of the financial services industry as we know it? Yes and no. The need for financial advice and guidance will always exist. But the delivery method will be more technology-intensive. Older- and wealthier- investors will continue to prefer a personal touch. But as wealth is transferred to the next generation and subsequent generations after that, the preferred method of receiving financial advice may be via a mobile device.
To be successful, financial advisors must embrace technology and incorporate it into their practice. They must also become more transparent- sharing their research and conclusions with clients rather than keeping it a closely guarded secret. And finally, they must show the next generation why their profession deserves to survive.
