If you haven’t noticed, more young advisors are working in the DC market. You may not see them at industry conferences and they may not be quoted regularly in the press — that’s the domain of the old guard. But there’s no question that there are more young advisors working in our industry. Here’s why.
First the numbers. Before the recession, there were an estimated 5,000 advisors with more than $25 million of DC assets, and half of the 300,000 active FAs were being paid on a DC plan. Today there are an estimated 25,000 advisors that we call “Core” advisors; overall, 250,000 advisors — close to 90% of all FAs — are being paid on a DC plan. Think about it — if you managed $10 million of DC assets when the Dow was 6,000, you would have more than $25 million now, even if you never won any new business.
So what’s driving the move to the DC market, especially among younger people? First, Gen X, Gen Y and Millennials not only have no hope of ever being part of a DB plan, very few of their parents are enjoying the benefits of a pension plan. In addition, most people under 40 think that Social Security won’t be around when they retire. So the concept of being personally responsible for saving for retirement is ingrained.
While younger people want to make money, they also want to engage in meaningful work that helps people. Working as an advisor to individuals can be meaningful, but helping bigger groups within DC plans that might never have access to a financial advisor is more meaningful.
But the biggest driver for young advisors is opportunity. A vast majority of the old guard advisors — known as the “Elite” group — those who have more than $250 million or who are part of a big team — built their businesses on the back of their wealth management business. Today, younger “Core” and “Emerging” advisors are building wealth management businesses by leveraging their DC plans.
For example, after a successful run as a wealth management advisor, Mike Cavanaugh in Chicago has built a significant DC practice in less than three years. Before engaging in the DC market, it took Mike 18 months to close a wealth management client. That same client within his DC plans will close in an average 22 days because of the power of third party endorsement by the plan sponsor and its CEO.
In the future, when retirement, insurance and health care will merge as corporate benefits that each employee can choose from, more benefits brokers will enter our market. Put another way, if you don’t incorporate wealth management and benefits within your retirement practice, at best you will be missing out on huge opportunities. At worst, you could become irrelevant — a danger that is not an issue for younger FAs.