Someday, there won't be enough advisers

The industry is aging. The average adviser is in his or her 50s, and 25% of advisers will retire in the next decade. The “readiness gap” — the difference in experience between founding principals and their successors, if any — averages 11 years. Our “adviser of the future” research estimates that the financial advice industry will fall far short of replacing the 237,000 advisers needed to cover anticipated retirement departures over the next 10 years — potentially leaving investors who want to work with an adviser unable to find one. Even though that day is still years away, firms are already facing the consequences of the talent gap. One example is the emergence of the “winner's curse,” in which the winner of the race for talent may actually become the ultimate loser, as the financial incentives he or she uses to attract advisers become so costly that the winner suffers permanent economic damage. This phenomenon will remain a growing problem as long as the cost of attracting recruits keeps rising while the supply continues to dwindle. For too long, the industry has delayed the development of a sustainable talent pipeline — one that taps into a new talent pool that could relieve the shortage, lift the winner's curse and bring a peaceful end to the recruiting wars. Fortunately, we're not too late.

IF YOU BUILD IT, THEY WILL COME

Whether you believe that “giving back” by developing talent is the right thing to do philosophically or you're simply out to meet your recruiting needs, the smartest way to address today's challenge is to develop a new, rich talent pool. However, two key barriers to recruiting high-potential talent are affecting our industry: Only 12% of new professionals are entering the industry directly from college, and only 30% of the industry is composed of female advisers. So what is keeping women and the next generation of professionals out of our industry? Younger advisers and female advisers are looking for mentoring programs (as are all advisers, to some extent). Pershing LLC's recent survey of 500 college students found that 90% would like to have a mentor to guide them in their career. And research conducted by our team suggests that while money may dominate the conversation when it comes to changing firms, it seems that economics is only a symptom, not the underlying problem, with retention. Contrary to popular opinion, advisers rarely leave firms because of compensation; instead, a failure of culture drives them out. Mentoring can provide an important antidote to attrition and add to the intrinsic value advisers look for to stay engaged. With a quarter of the adviser population retiring in the next 10 years, where will all their wisdom, knowledge and clients go? If formal or informal mentoring programs are not established, the knowledge that advisers hold will be lost when they depart the industry. It is important to start the knowledge transfer now.

MENTORING OPTIONS

Mentoring programs don't always have to be complex — with sponsors, protégés, mentors, executive committees, focus groups, etc. You can put something together without a large human resources department and a project manager. It's more important to create a culture of feedback, where mentoring is woven into the fabric of a firm. Here are some examples: • Manager mentoring: This is done on a daily or weekly basis, with managers providing professional development and emotional assistance to staff members. • Reverse mentoring: Don't underestimate young advisers. They can provide fresh insights and grass-roots reports to seasoned executives, all the while feeling empowered themselves. • Virtual mentoring: In a global and multi-location environment, mentoring can come from associates in distant places using e-mail and text messaging. • Group mentoring: Leaders in an organization or affinity groups can create group mentoring environments where executives mentor small teams of employees who exchange ideas at casual settings. • Hired and professional mentoring: Myriad practice management coaches are available in our industry, and these paid mentors and coaches can be important tools in building a practice. • Peer mentoring: Colleagues can act as mentors. Peer-level colleagues can help with collaborative problem solving, stress-testing ideas or providing emotional support.

GROWTH OPPORTUNITIES

Providing feedback and a forum for generous listening are critical aspects of mentoring, but at some point, you also have to provide work-related growth opportunities. Experts say 70% of professional development happens on the job, 20% through critical relationships (mentors and sponsors) and only 10% through formal training programs. In other words, on-the-job experience taking on big roles is often the game changer for rising leaders. Without high-profile opportunities and a real chance to make a difference, even the best mentoring programs fail. There are good business reasons for providing mentoring, but there are personal reasons, as well, including the opportunity to share your gifts and watch others flourish. When a leader embraces both, he or she can create an enduring competitive advantage and a lasting personal legacy. Kim Guimond Dellarocca (kdellarocca@pershing.com) is global head of segment marketing and practice management at Pershing LLC.