Back in the day, you'd end up in wealth management because of the people you know. If you were lucky, and had rich connections that you could persuade to invest their assets with your employer, then you had a chance of longevity and a lucrative career in the industry.
Craig Pfeiffer, the president and CEO of the Money Management Institute (MMI), is on a mission to change the 'sink or swim' tradition in U.S. wealth management. The industry is facing a talent crisis – there's way too much grey hair and not enough new blood going into the industry. Morgan Stanley was the latest large bank sign up to a deal cutting back on the use of sign-on bonuses to entice brokers, such is the tendency for financial advisory firms to poach the best people with the biggest books of business from their rivals.
Young people are turned off by the industry, says Pfeiffer. "Their reference points and inputs are parents, teachers and Hollywood, from Bernie Madoff to The Wolf of Wall Street and the TV show Billions, which are exaggerated examples," Pfeiffer said.
Pfeiffer suggests that the wealth management industry should shift to a "learn by watching success" model, like doctors, lawyers, teachers and apprentice-oriented industries have, rather than the traditional "learn by making mistakes" model of giving new recruits a desk and a phone and wishing them luck, which inevitably leads to a high failure rate.
"It is a tough learning curve in wealth management; however, medical school and law school are both pretty tough, but they have done things to enable success, whereas we as an industry have traditionally thrown them into the deep end of the pool and waited to see who can figure out to swim," Pfeiffer said.
Pfeiffer has been around the block and back again on Wall Street. He started out on the 1970s at small regional firms that went through a series of mergers and acquisitions to form Shearson Loeb Rhoades, later Citigroup and eventually Morgan Stanley Smith Barney. When he left in 2015, he was vice chairman and managing director with leadership responsibility for 18,000 financial advisers located across 800 offices globally. He joined MMI that year.
Wealth management used to be a second career, with most candidates applying for their first job in the industry in their late twenties or early thirties. Now a higher percentage of early-career-stage professionals are in their early to mid-twenties and are in need of more training and mentorship.
Pfeiffer insists that the industry is evolving. "There is a definitive hierarchy of roles within advisory teams and a structured roadmap with continuous learning and advancement, enhanced by role-modeling and mentoring," he said. "In their new employee training programs, firms should emphasize soft skills and chemistry with clients, focusing on their goals, emotions and risk tolerances versus investment products, features and benefits."
MMI is partnering with the Envestnet Institute On Campus program, which offers on-campus guest lecturing and online courses that provide an insight into the wealth management industry.
In addition, Pfeiffer feels that wealth management firms should take a cue from the top professional services and management consulting firms in taking a longer-term view of talent development, seeing it as an investment rather than an expense.
“We’ve had a short term view on ROI, whereas when Big Four partners are aging and those firms experience natural attrition, they hire recent college grads and make a long-term investment and nurture them over time,” he said. “There will be all new partners at Deloitte, PwC and McKinsey in 10-to-15 years, which is a longer horizon. That is cultural to those firms, but it is not culturally ingrained in the wealth management industry."
Pfeiffer recommends giving entry-level hires broad exposure to various areas of the business so they can figure out what interests them most and what their skill set is the best fit for.
"Most wealth management firms don’t have rotations, but if people got to see different things and were exposed to more aspects of the business early on, then more people would gravitate toward their favorite areas, and I know that would lead to better retention rates," he said.
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