Leave a comment

Three Ways to Address the Lack of Adviser Diversity

The financial advice profession is objectively one of the least diverse professions in the United States. Many of us in the advice industry are painfully aware of this from an anecdotal perspective; one only needs to attend almost any industry function and simply scan the room for it to be clear.

The actual statistics are even more sobering. Of the more than 83,000 CFP® professionals in the U.S., less than 3.5 percent are black or Latino. Women enjoy somewhat better representation, at 23 percent. However, once you look at all advisers, not just CFPs, women only make up 16 percent of the total, and the black and Latino representation among all advisers is almost infinitesimal.

The reality is that advisers are a fairly homogenous bunch. With some exceptions, the average adviser is a 50-year-old white male, who likely began his career as a broker or insurance salesperson. In fact, the largest cohort of advisers is between the ages of 45-54. According to U.S. Census Bureau data, however, the average American is a woman, with a median age of 37, who makes around $47,000 annually. She also happens to live in a city (and leans Democratic, for what that’s worth).

Meanwhile, America, already a diverse nation, is becoming even more diverse. The Census Bureau projects that the U.S. will become a minority majority nation by 2043. Non-Hispanic whites will still be the largest single group, but no one group of people will have the majority. The implications of this should serve as a wake-up call to our profession. We need to be prepared to better serve the retirement planning needs of a much broader swath of Americans in the future. And it’s important to note that retirement planning needs have changed significantly, as most Americans no longer have pension plans to sustain them in retirement, and the median income is $60,000.

As such, these Americans are mostly unprepared for retirement, unfamiliar with investing and underserved from an advisory point of view. The Center for Retirement Research calculates a measure of retirement readiness, the National Retirement Risk Index (NRRI), which reports that 50 percent of Americans are at risk of declining living standards in retirement. These are people who desperately need to save for retirement, and currently have little in retirement savings. The majority of Americans need behavioral coaching around saving, financial planning and even basic personal finance assistance. There is most definitely a market for this type of advice; however, the reality is that this type of advice will not be anywhere near as lucrative as the high-net-worth individuals many advisers pursue today.

Coincident with the above is the fact that there happens to be fairly significant demographic changes taking place within the wealth management space. Almost 40 percent of advisers are expected to retire in the next 10 years, according to Cerulli Associates. Combined with the fact that over the next 20 years we will experience “the great wealth transfer”—the migration of assets from baby boomers to their heirs (most of whom do not currently have advisers) by 2022—the U.S. wealth management industry is likely to face a shortfall of at least 200,000 advisers.

The advisory practice of tomorrow is going to be very different than that of today. And the systemic changes described above just might help position the industry for the changes that I believe are necessary, including:

  1. Advisers becoming much less sales- and investing-oriented, and instead looking and feeling more like financial counselors, deploying soft skills such as emotional intelligence, empathy and compassion.
  2. Practices pivoting away from being profit-oriented toward being client-oriented.
  3. The profession embracing diversity and inclusion among advisers.

The question is how, and what are the practical steps we need to take in the meantime, as an industry, to ensure a more diverse adviser population positioned to serve an increasingly diverse population?

Recruit and Hire Purposefully

Too often, we hire from a rather closed network of friends and family, or even friends of friends and family, which directly contributes to the homogeneous culture we have today. Instead, we must make a conscious, purposeful decision to hire diverse candidates, and this commitment must come from the top and permeate the organization. Recruiting from historically black universities and colleges is a great start. Targeting appropriate affinity groups, professional networks and community associations is another way to identify diverse candidates.

Closely tied to a firm’s recruiting efforts is the overall messaging of the firm, which also needs to be consistent with a commitment to diversity and inclusion. Candidates will naturally review advisory firm websites, social media and communications before deciding to accept an offer, so firms need to ensure all internal and external communications and images align with the core commitment to diversity and inclusion.

Education is important, as well. Oftentimes, college and high school students simply do not realize that financial planning is a career option, or if they do, they view it as a hard-charging, Wall Street-type of role. It is critical for high schools and universities to offer classes in financial planning and/or financial literacy, and for industry leaders to do their part in enabling success for the next generation with programs such as the Envestnet Institute on Campus.

Rethink the Advisory Business Model

Technology must be incorporated in all areas of advisers’ practices in order to address the changing industry. From client acquisition and onboarding to aggregation to online meetings and scheduling, even elements of investment management. These practices will need to be automated in order for advisers to scale their practices and take on additional (perhaps lower margin) business. Independent RIAs with advanced technology integration generate around 50 percent more financial plans and investment proposals compared to their peers that don’t benefit from advanced integration. According to Envestnet-sponsored research from the Aite Group, this increased advice activity translates into a greater number of clients served by the practices (57 percent more), larger books of business (78 percent larger) and greater practice revenue/production (46 percent greater).

As many elements of the traditional advisory business model become commoditized, such as trading, asset allocation and even security selection, advisers must concentrate their efforts on higher-value—and more impactful—activities. They must do more with less and segment their clients appropriately. They must move away from providing advice on investments, and toward advice on life events, long-term goal planning, financial planning and relationship management. Everything else that is or has become commoditized must be automated.

For the more diverse adviser of tomorrow, this means supporting the industry’s move toward holistic financial wellness—an approach that incorporates all aspects of wealth management with less of a focus on pure investment management. Rather than relying on a data-driven approach to the handling of money, an increasingly diverse population of clients prefer a deeper focus on life goals for themselves and their families. This shift will attract advisers who care more about making financial wellness a reality and who respect the differences in communication styles when it comes to helping clients reach their goals.

Modify Compensation Approach

The way advisory firms are structured today from a compensation standpoint provides a self-selecting mechanism for hiring talent, which also contributes to the current lack of diversity. On the matter of hiring and onboarding practices, there is an emphasis on bringing in candidates who already have a strong network of potential clients. In fact, a vast majority of hiring professionals (86 percent) are looking for prospects who can bring in clients right away, according to CFP Board research.

This has a twofold effect of bringing into the firm primarily sales-focused individuals, and discouraging candidates who do not have friends and family with substantial-enough savings. Instead, firms can institute a team-based salary and bonus framework that would incentivize service, client retention and bringing in any new business, not just large books of business.

With a compensation strategy that includes a team-based incentive, firms reward everyone involved in the client relationship, with a scaled reward structure based on the level of personal contribution. That way, the need for financial security for all team members is addressed, and the team is motivated to work together and deliver strong results.

Conclusion

There are both aspirational and practical reasons to champion diversity. We should want every industry, including wealth management, to be diverse, because it’s simply the right thing to do. But also, countless studies have shown that diversity—of culture, gender, race, background, thought and more—objectively leads to better outcomes across the board. In order to ensure our industry thrives amid all the changes ahead, we must all do our part to enable and create a diverse, vibrant workforce.

Estee Jimerson

Estee Jimerson is the managing director, head of asset manager distribution at Envestnet.


Leave a comment

It’s Not Just About Salary: Purposeful Staffing

I routinely get calls or questions from advisers about compensation for a staff position or junior adviser. Whether it involves hiring/retaining a junior person, or a staff member trying to make a case to their firm about how underpaid they are, the conversation is less about salaries (although it does come up) and more about incentive or variable compensation and bonus. Instead of providing a number or formula, I’ve been asking what would it take that person to leave your firm and why are you doing things? If you know what kind of firm you’re running, and what your goals are, you can be purposeful with compensation.

What Behavior Do You Want?

Over the years, I have lived by a simple rule when it comes to compensation: compensation, especially with variable comp, should be used to drive better behavior. More importantly, advisers shouldn’t have to stick with the same variable comp structure every year as priorities and goals may change. I ask the adviser to think about the goals of their firm, more importantly the leading indicators of success and tie the metrics around those indicators.

As I said, the conversations are changing lately—they are becoming broader. Today, we start with a conversation about work environment. We answer and discuss:

  • Is there a clear vision and purpose for the firm (Do you know where you are headed)?
  • Does the employee have/want the opportunity to grow and is the path laid out for them?
  • Is there a sense that the employee is fulfilled?
  • Is the employee valued?
  • Is compensation really the issue you are trying to solve for?

In my mind, staff more often leaves a business for reasons other than compensation. The biggest reason is always around the vison of the firm and where they fit.

Purposeful Staff

In our most recent paper, “The Purposeful Advisory Firm,” my co-author Raef Lee and I discussed the concept of value engineering for advisory firms. The idea was that an advisory firm has a few levers they can pull that can determine the firm’s direction. Moving a lever in the right direction can propel the firm toward successful enterprise or to a lifestyle firm. I think the people (staff) lever is the most important.

How you use talent can be the key to your success, so it is critically important to understand, communicate and plan for the direction of your firm before you discuss variable compensation with the staff. How can you decide on a number if you don’t know what you are paying for or the direction that the compensation will take your firm?

Lifestyle Versus Enterprise: Questions for You

Before you get into the dollars and cents of a compensation plan, I think it is important to ask questions that can help move that value lever:

  1. Do you aspire to take your firm to the next level? (In addition, can you define what that next level looks like?)
  2. Do you have the appetite for adding (and managing) more employees?
  3. Do you have it in you to fire yourself as adviser and hire yourself as CEO?

If you answer yes to all three of these questions, you are heading down that enterprise path. You will be busy with defining roles, job descriptions and creating a path for all your team members to grow within your firm. Yes means looking at a team approach to the client service model and possibly a chief operating officer hire. The enterprise variable compensation will look at the big picture of the firm and how you are building it for the future.

If you answer no, then the lifestyle approach may be calling you. And figuring out that variable compensation is going to be even more important. You should create a plan that reinforces longevity, continuity and service. The lifestyle firm cannot afford huge turnover that will force the adviser back in the day-to-day operations of the practice. Morale and culture are very important to retain existing clients and strengthen the brand of the no-doubt personality driven firm.

Consequences

Not having a purposeful compensation plan in place leads to employee retention issues. A purposeful plan leads to maximizing the hire for the future direction of your firm. I am often accused of sounding like an attorney (or an economist). When someone asks me about compensation, instead of a direct answer, I now say, “It depends on you.” What kind of firm do you want to be?

Editor’s Note: Join SEI and FPA for a webinar titled, “The Renaissance in Charitable Trust Planning,” at 2 p.m., Eastern, April 18. Register for the webinar here. Also, a version of this blog post first appeared on SEI’s practice management blog, Practically Speaking.

John Anderson

John Anderson is the managing director of Practice Management Solutions for the SEI Advisor Network. He is responsible for all programs focused on helping financial advisers grow their businesses, create efficiencies in their operations and differentiate their practices. He is also the author of SEI’s practice management blog, Practically Speaking.

 


Leave a comment

4 Steps to Use Public Speaking to Attract More Clients

Financial planners are always looking for a way to find new clients. However, many people fail to find effective marketing methods to do that.

This situation does have a solution. As a public speaking and marketing consultant, I find that most financial planners can become more successful by using public speaking in their marketing plan.

Here, I’ll outline the many speaking opportunities that you can use to attract more business. There are thousands of groups in need of a guest speaker at their meetings and conferences. A few examples include: business groups, charity groups, associations, corporations, conferences, conventions, organizations, schools and colleges, professional groups, churches, special interest groups and many other types of groups and organizations.

Now, let’s take a look at an example of a possible small marketing plan that uses public speaking. Imagine if a financial planner started by giving a 30-minute speech each week to different groups with an average attendance of 50 people per group. In a period of 50 weeks, you would have spoken to 2,500 people. Also, you would have the chance to answer their questions and shake hands with them. Just imagine how many potential new clients and customers you might attain from giving 50 speeches each year about your products or services.

Also, you might acquire many referrals as you start speaking to a variety of groups and organizations. Furthermore, this is just a starting point. Many ambitious financial planners with large financial goals can start giving 50 to 200 speeches each year and they can start speaking to much larger groups.

So, you might be wondering, why isn’t everyone using public speaking to get more business? Well, there are two main obstacles that keep people from using public speaking. First, public speaking is a very common fear for most people. The second obstacle is that most of us were never told that public speaking is a great marketing tool for attracting new customers. So, as a result, we never bothered to learn how to use public speaking to gain more clients.

But, there is good news. We can learn to conquer these two obstacles.

When I coach many kinds of business people in my seminars and teleseminars, I use what I call the “Four-Step Plan.” All four steps are very important if you want your public speaking to be successful.

Step No. 1: Know Your Reason or Goal for Becoming A Public Speaker. Think about the specific goal that you want to achieve by giving speeches. For example, you might want to get 100 new clients or earn an extra $100,000 in the next year. Now, each person may have their own goal, but make sure that you have a specific goal to aim for. Having a specific goal will motivate you to put in the effort required for making your public speaking successful.

Step No. 2: You Must Have a Slow and Safe Way To Practice Public Speaking. Since public speaking is a very common fear, you’re going to need a slow and safe way to build our confidence as speakers. This can be accomplished in small supportive groups or seminars, where people can practice giving speeches at their own pace.

Step No. 3: Be Willing to Use Public Speaking All The Time. Here, you have to decide if you’re willing to use public speaking on a regular basis. For example, if you give one or two speeches each week, you’ll discover that you have given between 50 to 100 speeches in a 50-week period. It’s this kind of commitment that will make public speaking an effective marketing tool for getting new clients and customers.

Step No. 4: The Business Side of Public Speaking. This involves learning how to make public speaking profitable by: getting paid to speak, giving free lectures in order to get new clients and referrals, getting speaking engagements at local community groups, business groups, associations, corporations, conferences, conventions, organizations, schools and colleges, professional groups, churches and many other types of groups and organizations. You will also start developing a strong “pitch” that will get groups interested in having you speak on your financial topics.

Overall, it’s important to know that public speaking can make you a well-known financial planner. It is also a great way to put you in front of many potential new clients. Finally, you will also have the chance to speak at a variety of groups and organizations that have the ability to make many referrals to you.

Edward Martin

Dr. Edward Martin is a public speaking and marketing consultant. He offers seminars and teleseminars on, “How To Attract New Customers And Clients By Using Public Speaking.” For more information, call Dr. Martin at 818-314-2054 or email him.