The Untold Story of the Professor, Advisor, and University That Plan to Save Wealth Management

Illustration by Leonardo Santamaria

Illustration by Leonardo Santamaria

A strategy to repair an industry.

The caricature of financial advisors has long been one of old, white men with country club memberships in an industry that appeared to continually replenish itself with them. Until now. In the next decade, more than 111,500 financial advisors — representing one-third of the workforce and assets under management — are expected to retire and not enough people want to fill their shoes.

In fact, in 2023 the U.S. wealth management industry is projected to lose a greater percentage of its workforce than the beleaguered coal mining industry, a dwindling part of the American economy.

Unlike warnings of the past, the latest projections have startled observers, especially the wealth managers already struggling to find and hire young would-be advisors.

The need for financial advice is undeniably increasing, if for no other reason than there are evermore rich people who seek it. From 2000 to 2019, the estimated number of millionaires in the U.S. more than doubled from 7.4 million to 18.6 million and 22.5% of the new ones were attributed to population growth, according to Credit Suisse. A growing population and economy means more wealth and a need for financial advisors.

Now, an RIA, a professor, and the University of Texas are hoping others will emulate their ambitious plan to reverse the worrisome trend and avoid a collective failure that would be detrimental to the industry, investors, and possibly the U.S. economy.

Eager to grow his company and steward young professionals into the wealth management industry, Russell Norwood created an internship program at Venturi Private Wealth, the Austin-based RIA he founded in 2015 that now manages $1.35 billion. He’s far from the only one looking for them.

In 2019, 76% of RIAs said they planned on hiring in the next 12 months, according to Charles Schwab, which is the custodian to more than 7,500 RIAs just by itself. Only 26% of firms have hired students out of universities and 42% planned to recruit from other RIAs, Lisa Salvi, vice president of Business Consulting & Education at Schwab Advisor Services, said.

Competition is stiff and Norwood wanted the internship to be demanding and come with real responsibilities. But he designed it to groom promising candidates into potential employees, not weed them out on a curve. Norwood speaks fondly of his 23 years at Merrill Lynch, but he had no intention of duplicating the cutthroat attrition rate of its advisor training program he participated in decades ago. Most didn’t make the cut and few stuck around as long as he did. Among Norwood’s class of about 350 new advisors, only five were still working at Merrill when he left, Norwood estimates.

But finding at least two interns each summer and hiring new full-time employees has required tremendous effort.

With high hopes, Norwood put Venturi President J. Michael Sanders in charge of the internship program. The 24-year veteran of Goldman Sachs spent time at the investment bank recruiting the most promising students to join it. Surely, if anyone could, Sanders was capable of convincing qualified, diverse candidates that Venturi — an ambitious, fast-growing wealth manager — was a hot ticket.

“We’ve had very high-quality candidates,” Norwood said. But there should be more and the group interested is disproportionately young white men. Most are studying finance, accounting or economics and about half are seriously considering wealth management. The others are seeking experience that will help land jobs in investment banking or other fields. Assuming those remaining are a good cultural fit, that leaves few potential new hires for a firm of 23 employees wanting to double in size in three to five years.

Five current employees are women and that ratio must improve, Norwood says.

Venturi is a believer in the universal recommendation from consultants that wealth managers need to better reflect their clientele or risk losing them. Hiring more women is a necessary start to diversification. Women represent 51% of the population and will soon control the majority of assets, according to McKinsey & Company. But only 14% of financial advisors in the U.S. are women and they manage a paltry 1.1% of the total industry’s assets.

Norwood has a recruiter on retainer to find women who are already financial advisors and might be willing to join Venturi. His search has not been heartening. In all of Austin, the capital of Texas with a population the Census Bureau estimates grew more than 20% from 2010 to 2018 to over 960,000 people, he estimated there were only about 10 candidates that might be a fit for the position at Venturi. Only a few meaningful conversations have come out of the search and no new hires.

“This is the world we’re in now,” Norwood said. But he doesn’t think it should be.

The role and expectations of the financial advisor have changed, especially over the last decade. In addition to investment management, clients want an advisor capable of helping them with all of life’s financial decisions. It’s a fulfilling task and a predominantly well-paying, white-collar job with far more reasonable hours than others in finance. It should be attracting a ton of young professionals, Norwood thought. Why isn’t it?

His search for answers, and Sanders’ connections, have led him to join forces with Ramesh Rao, a finance professor at the University of Texas.

Faculty at the University of Texas’ McCombs School of Business have pondered a similar question: Why are so few graduates from one of the top business schools in the country pursuing wealth management, a fast-growing area of finance services?

“Over time, it became clear to me that we were teaching people how to manage multibillion-dollar corporations. But these people had little idea [or interest in] how to manage smaller things and that struck me as very odd,” Rao said.

Rao spent recent years learning more about wealth management and when the business school made the decision to create a minor “I jumped on that,” he said. He is now the director of the new program that officially launches the coming fall semester. The program had not previously been reported.

Meanwhile, working closely with Rao, Norwood, a University of Texas alumnus, has been named director of the McCombs Wealth Management Network, spearheading the partnerships between the university, students, and industry. It also intends to raise money and create a long-term source of funding for a Wealth Management Center to support academic and applied research focused on the industry, which Rao says is lacking. A brochure for the center says it will “bridge the academic community and industry to change the way the world invests in its financial future.”

The headwinds that set up the talent shortfall are easy to identify but hard to remedy, according to Rao, Norwood, and more than a dozen others interviewed for this story.

One of the biggest problems is a prevalent belief that financial advisors are just salespeople. A multitude of students, often misinformed by parents, high school guidance counselors, and others, lack interest in the profession from an early age.

Salespeople already face the challenge of dispelling assumptions about how well-intended they are and adding financial advice to the mix doesn’t help. An all-time high 33.3% of Americans said they trusted financial institutions in 2019. But that still means two-thirds of the country does not trust financial organizations and most of the recent rise in confidence stemmed from an increased trust in “mutual funds, the stock market and large corporations,” according to the University of Chicago Booth School of Business and the Kellogg School of Management at Northwestern University.

“We’re not all brokers selling penny stocks in a boiler room, which is what they think,” said Carina Diamond, a managing partner and the Chief Experience Officer at Dakota Wealth Management, an RIA in Palm Beach Gardens, Fla. that manages more than $1 billion. For years, Diamond has recruited college students in Northeast Ohio, where she lives and works, and tried to educate the public about financial advisors.

It’s not just students who are disconnected. Historically, academia’s attitude toward advisors has not been positive. “Traditionally, academia has viewed wealth management as simply sales and diversification. There is an image problem and we need to increase the prestige of the profession,” Rao said.

Those attitudes are coming around but that’s not solving the talent problem. The industry needs thousands of more advisors in the coming years just to keep pace with those exiting, let alone grow its workforce. The current pipeline of university students pursuing wealth management is a watering can and the industry needs a spigot.

There are more than 130 certificate, minor or bachelor’s degree financial planning programs in the U.S., far fewer, for example, than the more than 2,400 accounting programs at universities. Some of the financial planning programs have as few as 10 students enrolled. Some of the largest have well over 100 students in the program but are graduating only part of the cohort each year.

But creating university programs and correcting the systemic talent issue is a major headwind all its own. A sort of chicken-or-egg conundrum exists.

“An administration doesn’t want to fund faculty positions for a major if there aren’t a lot of students. But you can’t get the students until you have the major, and you can’t have the major until you have the faculty. And that’s not just financial planning, that’s anything new that you want to start,” said Susan Hanlon, the dean of the College of Business Administration at the University of Akron.

At a recent conference with other deans, Hanlon said wealth management was a topic of discussion. “They all know this is a growing area, but they have this exact issue.”

A collaboration between industry and academia is almost required to break the cycle, Hanlon said. That’s what happened at the University of Akron. When low enrollment of about 20 or 30 students threatened the financial planning program, Diamond, of Dakota Wealth Management, and a handful of local wealth managers recruited and paid for the salary of a full-time professor until the program grew and became self-sustaining.

“We would never have our program if that never happened,” Hanlon said.

It now has about 120 students and is contemplating the creation of a center similar to the one at the University of Texas. It’s a good opportunity to continue to grow the financial planning program and the number of advisors, but no single university can fill the need on its own.

Without enough advisors, the demand for their services could outweigh what the industry can provide and the cost might go up, Hanlon said. But there are greater ramifications, in her mind. A prolonged talent shortfall could mean that, collectively, millions of people could be without financial advice they should otherwise be able to get.

In recent years, wealth management has been the darling of financial services for its growing number of potential clients and recurring fee revenue, that is more predictable than that of trading and investment banking. EY estimates global net investable assets of clients with at least $1 million will grow from $55.4 trillion in 2016 to $69.6 trillion in 2021. Out of the $14.2 trillion in absolute growth, of which emerging markets should account for most of that gain, the U.S. is expected to contribute $5.25 trillion.

In the U.S. it continues to grow in part because there are simply more rich people. From 2000 to 2019, the estimated number of millionaires more than doubled. And from 2018 through 2023, the affluent segment (those with between $250,000 and $1 million to invest) in North America is expected to grow 6.5% to almost 51 million people, according to a report last year by Boston Consulting Group. Their wealth is projected to grow from $8.4 to $11.5 trillion over the same period. McKinsey & Company estimates there are 30 million U.S. households with $100,000 to $1 million in investable assets.

In addition to all of those people, there are millions in the U.S. who could benefit from working with financial advisors and are increasingly eligible as more advisors experiment with hourly fees and other means to charge for their help.

But a new report shows the number of financial advisors isn’t growing to meet that need. The opposite is expected to happen.

In the next 10 years, an estimated 111,500 advisors will retire, representing more than one-third of the workforce and assets, according to Cerulli Associates, a Boston-based research and consulting firm.

Following several years of flat growth—the number of advisors hasn’t grown or shrunk by more than 1% since a 3% decline in 2012—a wave of advisors are set to begin retiring in 2021, according to Cerulli. The total number of advisors is expected to decline 0.4%, 0.9% and 1.4%, respectively, in the coming three years, translating to thousands of professionals.

These are jarring projections. As the U.S. population and economy grow, not many expanding industries are forecasted to employ fewer people.

U.S. manufacturing is projected to have the most rapid employment decline of any sector from 2018 to 2028, according to the Bureau of Labor Statistics. While some sub-sectors are expected to lose employees at a compound annual rate as high as 4.6%, the wealth management industry is nearly tracking others. Textile mills and textile product mills; iron and steel mills and ferroalloy manufacturing; and household appliance manufacturing; are projected to lose 1.9%, 1.6%, and 1.6%, respectively, each year over the same period.

In 2023, coal mining is projected to lose employees at a compound annual rate of 1.3% while the number of financial advisors is projected to fall a sobering 1.4%.

To be sure, retirements and job losses are not the same. However, Bureau of Labor Statistics projections “assume labor market equilibrium,” meaning labor supply will meet labor demand. The bureau expects changes to the U.S. economy through 2028 will eliminate manufacturing jobs and, as a result, employ fewer manufacturing employees.

The salesperson perception and the absence of an adequate supply of students, coupled with the disproportionately old workforce, created the inverse relationship between the growing wealth management industry and the number of financial advisors.

Consultants and researchers say the advisor population is “rapidly aging.” The average age of advisors is currently 51. But 44% are 55 or older and only 10% are under 35, according to a February Cerulli report. The trend has been worsening. Only 25% were under the age of 44 in 2019, compared to 33% in 2010, according to a January McKinsey & Company report.

There is a camp that doesn’t think a shrinking number of advisors is a problem. Improving technology is making advisors more efficient, enabling them to serve more households and make up the difference for fewer practitioners.

At least one large wealth manager, Wealthfront, the robo-advisor that managed $13.6 billion across 315,643 accounts according to November a regulatory filing, believes technology can replace advisors altogether. “If you use advisors, you’re never sure whether they’re making the best decisions for you... or for themselves,” the robo-advisor says on its website. In 2018, the company made its automated financial planning free to anyone through its app.

Betterment, one of the largest robo-advisory services with a total of $16.4 billion across 542,046 accounts, offers automated investment management for 0.25% per year. But investors with a minimum balance of $100,000 can select a Premium plan for 0.40% that gets them unlimited calls with a team of CFP professionals and other financial experts.

“I think there are reasons why maybe fewer people are going into the industry, but in the long-term I believe we will still need advisors. So, I’m bullish on it as a [career] path. The type of work might change over time. Maybe it becomes more of a coach, more of a planner. I think that people who are successful are approaching it that way and want to have that kind of a position,” Betterment CEO Jon Stein told RIA Intel.

Even young investors are working with financial professionals; 41% of millennials, born from 1981 to 1996 and now the largest generation as of last year with 73 million people, are already working with one, according to a 2018 report by the FINRA Foundation and CFA Institute. Most (76%) also said they were “highly satisfied” with their financial professional and viewed the relationship as collaborative. Those not working with an advisor said it was because of the perceived expense and lack of resources, not lack of trust, according to the report.

Facet Wealth, a Baltimore-based technology company that connects investors with financial advisors and has raised $33 million in funding, is out to make advisors more efficient. The average advisor works with about 75 clients but that could dramatically increase, according to Facet.

Facet cofounder and CEO Anders Jones believes the shrinking workforce is an issue and that his company can be part of the solution.

“It is a huge problem. Has this happened [in another industry]? And what happens when it does happen? I can’t find anything that has ever sort of evolved the way that this seems to be evolving right now,” Jones said.

“We obviously have aspirations to build a massive business where we have thousands or tens of thousands of advisors. And if we’re able to do that, we actually could potentially move the needle a little bit just in our own right. I don’t want to be too hubristic and say that we can solve the problem single-handedly because it’s an enormous market and we’re just one of many players.”

The company currently employs 25 advisors and hired an industry outsider in November to help it grow.

It’s not all doom and gloom.

“I will say, what we see is programs sometimes launch modestly with 25 students or something like that, but it tends to grow very quickly,” Salvi said. Schwab’s consultant to RIA’s has also worked closely with upcoming and existing university programs.

Without any formal promotion (because the minor is not technically part of the course catalog until the fall), it seems the program at Texas is off to a promising start. Rao thought 30 or 40 students might pursue the wealth management minor next fall — there haven’t even been any faculty counselors formally affiliated with it. To his surprise, through word of mouth on campus, he recently learned about 150 students interested in the program have crammed into an accounting course this spring, displacing some studying economics and other majors.

Like existing programs at Akron, the University of Georgia, Texas Tech University, and others, Norwood and Rao hope the new program at Texas will be another example of viability and inspire industry donors to fund new programs.

They are optimistic the wealth management industry can help itself. Venturi plans to donate $100,000 over four years to the wealth management center at the University of Texas and other “big” wealth management companies have expressed interest in helping fund it, Rao said.

“For me, and for Ramesh, it’s a legacy opportunity. We’re not doing it to gain a few extra interns. Certainly, we’d like to, but it’s as much about giving back to the industry that I wouldn’t be here without today,” Norwood said.

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