The Next Generation of Producers Is Emerging

Art by Wenting Li

According to a new TD Ameritrade survey report, “2019 FA Insight Study of Advisory Firms: People and Pay,” the average age of advisers has ticked down meaningfully in the last five years.

“As the next generation of RIA [registered investment adviser] leaders comes to the forefront, they are investing in their firms with a long time horizon,” explains Vanessa Oligino, director of business performance Solutions at TD Ameritrade Institutional.

The survey report suggests the median age of advisory firm associates is 42, while the median age of lead advisers is 46 years, down from 50 as measured in 2015. Firm owners remain “characteristically confident” about continuing growth in 2019. They’re investing in senior-level experience, with lead adviser compensation up by 12% over the last two years, “in an effort to secure seasoned talent that can help supercharge growth and navigate tomorrow’s challenges.”

According to the survey, choppy markets have not quelled firm owners’ optimism, even as growth in assets under management has slowed. The median revenue growth rate for firms was 14% in 2018, up slightly from 2017, while the median client growth rate of 7.4% was little changed. The rate of growth for assets under management dropped to 5.9%.

“We expect to see different approaches to industry challenges—whether they be staffing and compensation, growth and organizational design, or technology and innovation,” Oligino says.

Overall, TD Ameritrade finds the median age of advisers is 49 , which is three years younger than in 2015. At the same time, six out of 10 firms have at least one owner who expects to stay at the helm for at least another 12 years. The study also suggests the number of owners who are 40 years of age or younger now equals the number of firm owners who are over 60.

Younger Advisers Are Producing

Scott Slater, vice president of practice management and consulting for Fidelity Clearing and Custody Solutions, says the average age of advisers has always been an interesting and evolving topic. Recently, he has seen emerging evidence that younger advisers are generating quite a bit of the industry’s growth.

“We commonly see advisers with at least 15 years left in their careers who are already doing pretty well for their practices,” Slater observes. “They’re having success selling in their 40’s. Many are selling not just to maintain but also to grow the business, and many of them are looking for help in terms of running their back offices and building sustainable enterprise value. They want to be more focused on serving clients.”

According to the TD Ameritrade survey, at 21%, a typical firm’s operating profit margin last year rose by more than a percentage point from 2017. Further, the survey shows overhead expenses as a share of revenue fell slightly in 2018.

“This translated to rising income for firm owners, whose median total income rose 3.6% in 2018 to $633,000, the highest since 2014, or 55 cents for every dollar or firm revenue,” the report explains. “Despite market declines at the end of 2018, firm financial performance was also strong compared to the average of the previous five years.”

According to the survey, the “quest for experience” may also help explain why firms continue to recruit lateral hires from inside the industry.

‘RIAs tend to hire predominately from other independent RIAs for revenue roles, though they may also consider recruiting from other financial services firms and wirehouses,” the report says. “Only 4% of firms are hiring recent college graduates for revenue-generating roles. A slightly higher amount, 6%, are hiring professionals from outside of the financial services industry.”

A Promising Profession

According to the U.S. Bureau of Labor Statistics, employment of “personal financial advisers” is projected to grow 15% from 2016 to 2026. This is much faster than the average for all occupations, which is 7%. The strong anticipated growth in the field is tied to theory that, as the U.S. population ages and life expectancies rise, demand for financial planning services should increase.

“The primary driver of employment growth will be the aging population,” a Bureau report suggests.  “As large numbers of Baby Boomers approach retirement, more are likely to seek planning advice from personal financial advisers. Also, longer lifespans will lead to longer retirement periods, further increasing demand for financial planning services.”

The report also cites the fact that corporate pension plans are rapidly being replaced by defined contribution plans, which require much more engagement by individual savers. This trend should also increase the demand for advisory services.

The Bureau of Labor Statistics expects the ongoing emergence of robo-advisers to only “partially temper” demand for personal financial advisers.

“The impact of this technology should be limited as consumers continue turning to human advisers for more complex and specialized investment advice over the next 10 years,” the report concludes.