What steps are financial service firms taking to engage Millennialsthe 77 million Americans in their 20s and early 30s who came of age after the turn of the century? Whether they are wealth creators or inheritors, traditional Wall Street firms are seeking ways to capture their assets.
Millennials, who have grown up with far greater access to technology and information than previous generations, differ in their attitudes and approaches to investing. In his article Millennials and Money, Michael Liersch, director of behavioral finance at Merrill Lynch, says he made the following observation after surveying 153 wealthy young investors. Many grew up immersed in online communities where the wisdom of the group, the ethic of crowdsourcing and DIY culture are highly valued. This generation, he concludes, is less impressed with experience and past performance, and more interested in having a detailed understanding of the facts.
Attempting to embrace this ethos, firms like Raymond James are attempting to disseminate information through various social media outlets, such as Twitter, Facebook and LinkedIn. According to public relations manager Anthea Penrose, the firm promises its advisors a 24-hour turnaround on compliance rulings for proposed posts. Approval usually comes more quickly and there is an arsenal of preapproved information that advisors can use at any time.
To one degree or another, almost every wirehouse firm is attempting to develop social media programs as a means of conveying information in a youth-friendly manner. But whether these will really hit the mark is a wide open question. One is left with the feeling that most firms are allowing rather than encouraging this activity. It seems they are indulging their advisors who are demanding the access, rather than teaming with them to create best practices.
Most Millennials probably think compliance-approved tweets from grandpa advisors are not cool. The problem is not the way the message is transmitted; it is the message itself and the author behind it.
Perhaps more than any other generation, todays young affluent want to deal with their peers. Merrills Liersch concludes that one of the most important elements of these new relationships is connection and network sharing. He tells us that members of the Facebook and LinkedIn generation want to know that your network will help them expand their network. As you might imagine, they want to network with successful others of their generation.
With that in mind, developing successful training programs that embrace Millennial advisors becomes critical at many levels. It is the single most important way to attract and maintain the wealth of this new generation and will determine the long-term viability of the industry.
That is easy to say, perhaps, but in recent years it has proven much harder to execute.
Firms do not like to reveal statistics about their training programs, but an 80% failure rate would not be surprising. It was recently reported that around 30% of Merrill Lynch trainees make it through the firms 43-month program. According to Cerulli Associates, that reflects or even exceeds industry averages. These dismal results have plagued the industry for years.
Chief among the reasons is that new advisors must bring more assets under management than ever before. Blaming pricing compression, firms have raised the bar, making any new advisors biggest challenge even more daunting. But while new advisors must raise more money than ever, clients have become more sophisticated and have more choices, making for a fiercely competitive landscape. No wonder so many young advisors fail, and why so many firms have pulled back on training or have shut their programs all together.
Those few who do succeed take a long time to generate meaningful additions to their firms revenue. That is the other problem with organic growth; It take times and patience to bear fruit. Most national investment firms, however, are publicly held and face performance timelines measured in quarters. Analysts and investors are much more focused on firms making their number now, rather than the health of a training program aimed at bolstering results years down the line. As they say, long term on Wall Street is next Thursday.
Despite all this headwind, the industry must find a way to mold Millenials into successful FAs. According to Cerulli, 32% of the advisor force will retire in the next 10 years. New blood is needed, forcing firms to rethink approaches.
A number of major institutions are attempting to tap Millennials technical know-how as the conduit for integrating them into their firms. They are training these new employees as financial planners and turning them into experts on the associated software. They then assign the trainees to senior advisors, who presumably will welcome this new-found expertise. They believe that clients will find comfort working on a plan with a young technocrat, and in turn the novice employee will gain meaningful experience in client-facing situations. The key here is the teaming of a rookie with a veteran in real client settings.
Merrill has recently revised its program so that every trainee must work as part of an established team. This allows for daily mentoring and seeding the new advisor with smaller accounts that the team may not have had the time to adequately service.
Those who successfully complete the first nine months of training may be eligible to represent their team at a Bank of America branch. There, they would receive referrals from their bank partners and then work with those new clients with support from their experienced partners back in the brokerage office.
Giving aspiring advisors access to bank clients is proving to be a game changer. At Wells Fargos WBS division, trainees are placed either at bank branches or private bank locations, where theyve achieved remarkable success. During the past three years, retention rates for trainees have been close to 90% for the first year of the program, 80% in year two and about 70% by the end of three. Dan Rave, who runs new financial advisor training for WBS, attributes these remarkable statistics to teaming, seeding, coaching and bank referrals. Each trainee is paired with a successful advisor and given a small book of business. In addition to a mentor, trainees are assigned a dedicated coach, and they learn to partner with bankers to generate referrals.
So there may be light at the end of the tunnel. Yet despite this ray of sunshine, the mindset that training programs just dont work continues to hold sway. Branch managers and senior executives have seen consistent failure for so long that they have become cynical non-believers. I have heard veteran FAs say, The best part of our program is that when these new people fail, I inherit their accounts. Firms must find ways to stamp out this culture of failure.
Compensation drives behavior and no place more so than on Wall Street. So heres a suggestion: Tie a substantial portion of a branch managers bonus to the success of the local training program, and watch the results improve dramatically.
Bill Willis is founder and president of Willis Consulting, a financial services recruiting firm based in Palos Verdes Estates, Calif.