During the next decade, financial planners, advisers and wealth managers will face a challenge not yet witnessed by the sector. An increase in demand for services will occur at exactly the same time that the number of practitioners available to meet that demand falls. To avert a crisis of confidence in the sector, triggered by an inability to service clients, firms must look to the new generation of workers coming on stream to fill its financial planner and paraplanner vacancies. The problem? Financial planning firms are struggling to attract younger recruits and when they do, they are often dissatisfied with the results. 

This situation is not sustainable. How can firms attract, retain and gain value from the brightest and best young candidates?
Demand for services risesA 2016 EY report – The next generation of financial advisers – says the imminent retirement of baby boomers (people born between 1946–1965) will drive the need for wealth management services, contributing to the 32% growth expected by the sector between 2016 and 2026. 

In addition, there is a general shift towards a savings culture, evidenced by the introduction of government initiatives in the UK, such as pensions auto enrolment, and the boom in budgeting apps, such as Monzo and PensionBee. This is likely to lead to greater awareness of, and desire to experience, the benefits of financial planning and advice. Research by pensions provider Royal London and the International Longevity Centre finds that people who take financial advice are, on average, £40,000 better off ten years later compared with those that do not (see cisi.org/stevewebb). 
A decreasing pool of qualified talentThe wider advice sector might struggle, however, to meet the rising demand for its services. The EY report finds that aging and retirement have contributed to a 4.3% reduction in the number of practising financial advisers between 2006 and 2016. The average age of a financial adviser is now 50 and this figure continues to rise. And for every financial planning graduate that enters the sector, two financial planners become eligible for retirement, the report suggests. 

Low turnover of qualified financial planners and advisers is an added issue. Sam Oakes, director at Bristol-based recruitment firm Recruit UK, recently researched the LinkedIn profiles of 7,200 people with ‘financial planner’ or ‘paraplanner’ in their job title. He found that 15% of financial planners and 28% of paraplanners in the UK moved jobs in 2017. 

The 9th annual executive survey: talent trends for 2018, from US-based executive search firm Kathy Freeman Company, confirms the low turnover trend. Respondents to the survey, conducted in the fourth quarter of 2017, all have established careers in a range of financial services, including asset management, wealth management, and private banks and trust companies. Just 10% of respondents changed jobs in 2017 – the lowest rate since the survey began in 2009 – and one-third of these moves were due to redundancy.
Recruiting new entrantsOne solution to this shortage of candidates is to recruit from the regular supply of school, college and university graduates coming onto the job market each year. Although this would require firms to invest in in-house training and development, there is an appetite to recruit from this pool of new entrants. ‘Industry demand for financial planning graduates’, a study published in the Financial Planning Research Journal in 2016, surveyed 191 financial planning practices across Australia about their recruitment plans for the five years up to 2019. The researchers – Diane Johnson and Mark Brimble of Griffith University and Ric Zanetti of Zanetti Recruitment and Consulting – found that 85.1% of financial planning firms wanted to recruit financial planners in the five years up to 2019 and 64.5% of those firms would be seeking graduates for those positions. One reason for this discrepancy, the researchers suggest, may be that small and medium-sized firms are reluctant to replace a qualified person with a less experienced one because they do not have the capacity to absorb the work required while training the new entrant.

How to attract and retain millennials

1. Highlight the career opportunities available for bright young people.

2. Introduce a structured graduate recruitment process and career pathway through the initial years into a financial planning career.

3. Introduce work-life integration benefits, such as flexible working practices and healthcare provision.

4. Millennials want to make a difference. Give them the opportunity to actively shape their work environment by, for example, inviting them to present their ideas to the board.

5. Overturn negative perceptions that millennials have of financial services by demonstrating the sector’s commitment to corporate social responsibility and highlighting its positive economic impact.

This touches upon one of the biggest recruitment challenges financial planning firms face – managing the transition of graduates through the first stages in their career. In ‘Easing college students’ transition into the financial planning profession’, a 2005 study published in the Financial Services Review, Joseph Goetz et al argue that it takes two to three years for a new graduate to generate more value for a firm than an entry-level wage. This is because employers must incur the costs of in-house training, certification and licensing, and supervision. Employers hope to recoup this cost when the value of the employee to the firm surpasses the wage paid, but this is typically when ambitious graduates tend to leave, attracted by employers who are willing to pay higher salaries for their new skills. This leaves graduate financial planning firms less willing to hire inexperienced candidates in the future.

Ten or so years later, not much had changed. In the Griffith University study, conducted between July and September 2014, responses to open-ended questions revealed a concern that younger recruits expected to progress up the career ladder faster than they were ready to. “It is extremely difficult to manage expectations of Gen Y entrants. They generally want to achieve so much in very little time, so staff retention becomes very challenging,” the respondent from one financial planning firm said. (Generation Y, also known as millennials, is the generation born between 1980 and 2000.)
Structured career pathwaysThe study suggests this cycle of turnover can be slowed with the introduction of a structured graduate recruitment process and career pathway through the initial years into a financial planning career, established through a collaborative approach between educational institutions and the sector. The pathway would include a smooth transition into the sector through, for example, a structured year with a financial planning firm. Of those firms that intended to grow staff numbers, 81.8% said they were in support of such a pathway.

The CISI already provides a clear qualifications pathway for those interested in becoming a paraplanner or a financial planner. Starting at foundation level, the pathway begins with a qualification in the Fundamentals of Financial Services (level 2) and the Foundation Qualification – Introduction to Investment (level 3). At qualifying level (level 4), practitioners wishing to become paraplanners complete the Certificate in Paraplanning while those wishing to become a financial planner will complete the level 4 Investment Advice Diploma, which includes the mandatory Financial Planning and Advice unit, followed by the level 6 Diploma in Financial Planning. Once candidates hold the diploma in financial planning and experience requirements are met, they are then able to apply for the globally recognised CERTIFIED FINANCIAL PLANNER™ designation.

Such structured pathways would be valued by new entrants to the profession if studies about the characteristics of millennials – the latest generation to join the workforce – are anything to go by. The Kathy Freeman Company report says that mentoring, with a focus on skills development and laying out a clear career path, are critical to attracting and retaining younger talent. The millennial study: work remixed, by investment company Accel and data company Qualtrics, finds that 51% of millennials versus 25% of baby boomers and generation Xers (those born between 1966–1980) worry about having the right skills to succeed in the workplace, suggesting that training and development is extremely important to them.

In fact, job-jumping millennials may give the impression that they lack focus and commitment, but the reality is somewhat different. While millennials have, on average, 2.29 jobs (versus 1.67 jobs for generation Xers) every five years, 82% of millennials say their job is an important part of their life. This is higher than older generations. And while money is important to millennials, the number one reason why they leave a job is to find a more fulfilling role. Satisfaction and stability also top compensation when it comes to the things they value most in the workplace. 
What makes millennials tickIf millennials are to be the solution to the sector’s recruitment challenge, firms need to get better at understanding what makes them tick, why they are not joining and staying, and how to change that. The Kathy Freeman Company report identifies a number of reasons behind the younger generation’s reluctance to join a financial services company in the first place. 

First, the sector has a perception problem. Many millennials believe financial services firms are responsible for the 2008 financial crisis and the resulting recession. Second, many hold earning a living and making a positive contribution to society as a dual priority and they don’t believe financial services can fulfil the second priority. Third, the technology sector is beating financial services hands down on offering millennials responsibility, the chance to make a difference and the chance to make money. And fourth, millennials expect to work in a diverse environment and believe that the financial services sector lacks diversity. As a case in point, the Griffith University found that women were underrepresented in financial planning and director level roles and overrepresented in lower-paid client service officer and paraplanner roles. The researchers raised concerns that the overuse of personal networks for recruitment – it was the most popular hiring method – was contributing to this lack of diversity.

Beyond laying out a clear career path, the Kathy Freeman Company report suggests several ways in which firms can attract and retain younger talent. With so many millennials saying their job is an important part of their life, firms should introduce work-life integration benefits, such as flexible working practices and healthcare provision. Young people want to make a difference so firms should create a culture that actively involves millennials in shaping their work environment. One suggestion is to give them the opportunity to present their ideas for innovation to the board, and for the board to act upon the ideas that have potential. Finally, the report urges firms across the sector to work together to overturn the negative public perception that exists among millennials about financial services. Highlighting career opportunities for bright, young people, demonstrating the sector’s commitment to corporate social responsibility, and highlighting the sector’s positive economic impact are all ways to overturn that perception.

Young people are looking for a structured pathway from education to qualification within a flexible working environment that offers them responsibility and the opportunity to make a difference. Firms that can offer that will not only solve their recruitment challenge, they will feel the benefit of employing a generation for which work is an important part of life. 

The original version of this article appears in the Q3 2018 print edition of The Review. All members, excluding student members, are eligible to receive the quarterly print edition of the magazine. Members can opt in to receive the print edition by logging in to MyCISI, clicking on My account, then clicking the Communications tab and selecting ‘Yes’.

Once you have read the print edition, keep coming back to the digital edition of The Review, which is updated regularly with news, features and comment about the Institute and the financial services sector.

Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk.