If you go to a financial advisor conference, you are sure to see lots of wrinkles and gray hair. According to a JD Power 2019 study, the median age of financial advisors is 55 years; 20% of financial advisors are 65 years of age or older. According to Cerulli Associates, only about 10% of consultants are under 35, and efforts to recruit younger consultants have not produced the desired results.
The aging of the industry has long been a source of dismay. Observers fear that the lack of a robust pipeline will lead to a lack of advice for people with increasingly complex financial needs.
However, this demographic change could also have an impact outside of one’s own offices. With 93% of defined contribution plans now work with an advisor. Will the aging of the consultant workforce adversely affect American retirement planning?
“This is a real problem, and I don’t know why every plan doesn’t talk about it,” said Rebecca Hourihan, founder and chief marketing office of 401 (k) Marketing.
The need for advice is real
Over the years, more and more plan sponsors have turned to consultants to help them design and monitor their plans. In 2019, Fidelity’s 10th Annual Plan Sponsor Recruitment Study found that 93% of Plan Sponsors work with an advisor, a record.
With the growth of 401 (k) lawsuits, Plan Sponsors have sought to mitigate some of their fiduciary risk by giving employment counselors some of the fiduciary responsibility.
Fidelity’s survey also found that sponsors are pressured by their employees to help them cope with their other financial challenges. They respond by implementing financial wellness programs as well.
According to Morgan Stanley and Financial Wellness Network, 75% of employees believe financial wellbeing is a major benefit, and 60% of employees say they would be more inclined to stay with a company if offered a financial wellness program.
“There are only 5,000 advisors who really specialize in retirement planning,” adds Hourihan. “We are still a long way from being saturated.”
The Impact of Advisors’ Retirement
Consultants work on retirement plans in two ways. On the one hand, consultants help the plan sponsors to design and monitor their plans. On the other hand, there are consultants who can also work with plan participants to train them and sometimes also to advise them individually.
Large, multi-billion dollar plans usually work with big consultants like Aon or Callan. These institutional firms have levels of management and are likely to be able to attract talented consultants, say observers like Jim Scheinberg, managing partner, founder, and chief investment officer of North Pier Fiduciary Management, which helps plan sponsors find advisors to work on their plans .
“The larger companies clearly have a plan to replace their senior advisor with younger employees who they educate through their systems,” says Scheinberg.
At the other end of the spectrum are small consulting firms that can be described as solo preneurs. Many of these firms lack succession plans and it is unclear what happens when the senior advisor retires.
“Business owners are probably scratching their heads and thinking, ‘What should I do?’” Says Hourihan.
In the middle are larger firms that were the target of M&A registered investment advisor madness last year. These, too, can survive the aging trend.
“[As smaller firms get bought up by RIA aggregators], they’re getting more institutional, ”said Shawn O’Brien, senior analyst at Cerulli Associates.
A role for technology
To fill the advisory void for smaller plan participants working with smaller advisors, plan sponsors may need to resort to technology solutions that use things like robo-advisors, managed accounts, and target-date funds that automate some investment decisions.
“Choosing a prudent fund statement is much easier than it used to be,” said Eric Droblyen, president and CEO of Employee Fiduciary, a 401 (k) small business plan provider. “The technology offers enormous added value.”
Smaller consultants can scale their practices with technology and only offer a small amount of personalized advice.
“People have so many different questions, and sometimes those questions are very personal and they may be more interested in technology answering them,” says Hourihan. “But automation can only get people to a point where they need human advice.”
Plan sponsors can use consultants strategically in situations where human advice is needed most and has the greatest impact, says O’Brien. “I think of those highly balanced participants who are about to retire. They’ll want to speak to an advisor because their decisions are so momentous, “says O’Brien.