Hiring and Retention Trends

PizzichilloFrank Pizzichillo, AIF®, RIA Regional Director

The long-term viability of an independent RIA rests, in large part, on its ability to attract and retain top talent. The fact that 12,000 to 16,000 financial advisors will retire for the next ten years has fueled intense competition to attract the next generation of stewards of our nation’s wealth.

As a result, many RIAs have had to rethink their employment practices in recognition of the shared characteristics of the four generations now in the workforce.

Compensation is a critical lever an RIA must get right when it comes to building long-term sustainability into their firm. To get compensation right, an RIA must consider the generational and motivational factors that drive your employees’ approach to work.

WHAT WILL MOST LIKELY CONTRIBUTE TO YOUR FIRM’S SUCCESS IN THE NEXT 1-2 YEARS?

Elite_Advisor_Survey

Source: BlackRock, The 2015 Elite RIA Study

Generations and Motivations

Many factors shape the way people approach work, including when they were born. Some RIAs have employees spanning four generations:  The Silent Generation (born between 1925 and 1946), Baby Boomers (1946-1964), Generation X (1965-1980) and Millennials (born after 1980). Each generation has distinct attributes, shaped by their life experiences and the values they have embraced along the way.

Take Baby Boomers as an example. Generally speaking, Boomers have been defined by their work. They take pride in knowing they’ve done a job well done, and for the most part, believe rewards will follow. Employment perks and titles have meaning to those in the Boomer generation. The concept of a work/life balance as critical to overall well-being didn’t come into acceptance until long after they had established their professional identities.

Generation X employees have a different approach to work. They tend to be less formal, and question authority. They were born during a time of declining population growth and lived through downsizing environments. They are global-thinkers, self-reliant and resilient. These characteristics make them adaptive to job instability. They value time spent away from work, and would be willing to sacrifice pay to strike the right work/life balance. Money and perks don’t hold the same allure for Gen X as they do for Silent Generation or Baby Boomers.

Total Rewards System

When building for sustainability, an RIA should aim for a total rewards system with cross-generation and motivation appeal. A total rewards system integrates pay, benefits and overall experience . . . the key elements that employees value the most. Done right, a total rewards system provides the benefits employees value greatest, while also reinforcing the RIAs culture and enhancing the overall work experience. Non-compensation programs which become key components of a total reward system include work-life initiatives, such as wellness programs, flex time, and work-from-home initiatives. They also include training and development programs, and peer and corporate recognition opportunities.

A multi-generational team working towards a common goal can provide an RIA with a significant competitive advantage.  The key is to embrace the perspectives and approaches each generation has to offer and create a flexible work environment and total rewards system that values and motivates everyone, regardless of age.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

Debt and Skepticism: A Millennial Mindset

Dan WilliamsDan Williams, CFPInvestment Analyst

Having overshot 30 by a couple of years, I have had to come to terms with the many changes that come with my new age group. Some good, such as lower car insurance rates. Some bad, such as feeling that 9:00pm is closer to the departure time rather than arrival time for a social gathering. Some are mixed; being called “sir” with a high consistency and no tone of irony. I am also no longer considered to be part of the “young adult” group that is said to represent the emerging consumers in the economy and, subsequently, more closely studied by market researchers. These new kids on the block, known as the Millennials, had the financial crisis occur just as many were entering college and the workforce and were beginning to make their first big life decisions. Not surprisingly, they now think about money differently than I did at their age, just a brief decade ago. So what is the current financial mindset of this group some seven years later?

Goldman Sachs reported, in a June 2015 study, as shown below, that this group upon receiving a windfall of cash would look to pay down debt more than any other option by a wide margin.

Williams_chart1

Goldman Sachs Research Proprietary Survey

The result is not entirely unsurprising given that a majority of college students graduate with debt and, often, this debt is of a daunting amount. However, the magnitude of this victory reflects an overall conservative outlook on how to manage their financial matters.

The second finding, shown below, is of greater concern as it shows Millennials to be very skeptical of investing in the stock market. When asked whether investing in the stock market was a good idea for them, less than 20% answered that the stock market is the best way to save for the future. Approximately twice this amount claimed ignorance, fear of volatility, or lack of perceived fairness as reasons to avoid the stock market. Clearly, the events of the financial crisis have left scars on this group that have yet to heal.

Williams_chart2

Goldman Sachs Research Proprietary Survey

I am left feeling very conflicted for this group’s future financial health. On one hand, it’s very admirable that, unlike some prior young adult groups, this group has realized early on that debt is not something you simply attempt to defer payment of indefinitely. At least in the case of high interest credit card debt, it is hard to find fault with the pay-down-the-debt option as a sound financial decision. However, an inflexible focus on debt repayment combined with shunning or deferring of investing in the equity markets represents a significant challenge to this group’s ability to save meaningfully for the future.

Quite simply, equity investing has been proven to be one of the best ways to grow purchasing power over time. One advantage the Millennials have is ample time to invest, ride out periods of market volatility and let returns compound. To forego any portion of this advantage has potential to be tragic for future savings. Consider a one-year delay in retirement investing at the start of a career The missed opportunity is more than just the amount of one year’s contribution; rather that one year’s contribution compounded with typically 40+ years of returns until retirement. Over 40 years, a single $5,000 investment compounded at 8% becomes over $100,000. Six consecutive years of $5,000 contributions compounds to over $500,000. This is the potential cost of delaying investing just for “a couple of years.” In other words, earlier contributions are invested longer and can compound to greater amounts. On a per-dollar basis, these are the most impactful retirement contributions.

Contribution at start of year Value of contribution at end of year 40, assuming 8% return per year
Year 1 $5,000 $108,622.61
Year 2 $5,000 $100,576.49
Year 3 $5,000 $93,126.38
Year 4 $5,000 $86,228.13
Year 5 $5,000 $79,840.86
Year 6 $5,000 $73,926.72
Total $542,321.72

Source: Brinker Capital

Albert Einstein said, “Compounding interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” More attention is given by advisors to older clients with more assets and fewer years until retirement. Often this is due to the fact that clients become more tuned into investing matters as they begin to see the light at the end of the tunnel (whether it be the light of retirement or the oncoming train of insufficient savings). However, the greater opportunity for advisors to help a client’s future financial situation occurs earlier on in a client’s investment life. Helping young clients start off with good financial decision making, such as early investing, and letting these good decisions compound, is likely one of the best ways he or she can add value. Each client situation is different as each client has different goals. However a secure retirement is likely a very common dream and as Langston Hughes wrote, “A dream deferred is a dream denied.” Anything that we can do to ensure those dreams are not deferred is truly good work.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Demographic Changes Looming (Part One)

10.17.13_BlogRyan Dressel, Investment Analyst, Brinker Capital

This is part one in a two-part blog series.

In 2013, it seems the financial headlines have been dominated lately by policy changes of the Federal Reserve, dysfunction in Washington, China’s threat of a hard economic landing, or Europe’s ongoing sovereign debt crisis.  Lost in these headlines are some major demographic trends that are already under way, or are looming on the horizon over the next decade.  Many of these changes will have a profound impact on investors, governments and societies in the United States and abroad.

Aging Population

The world’s developed countries are aging quite quickly.  As of the most recent 2010 census, the median age in the U.S. is 37.1, compared to 28.2 in 1970.  This is actually fairly low in comparison to some of the world’s other developed nations.

10.17.13_Demographics_Part1

This is not a huge surprise as the baby boomer generation is reaching middle age.  It does, however, have some large implications that need to be watched closely by investors, companies and governments over the next decade.

What implications does this trend have for the U.S. and abroad?  For starters, an aging population will put a large strain on healthcare costs as the number of people who need access Medicare increases.  A study by Health Affairs cites aging population as a main driver of rising health care cost forecasts.  It projects national health care spending to grow at an average annual rate of 5.8% over the 2012 – 2022 period (currently near 4% in 2013).  By 2022 health care spending financed by federal, state, and local governments is projected to account for 49% of total national health expenditures and to reach a total of $2.4 trillion.[1]

Second, smaller subsequent generations (Gen X, Gen Y) will have to increase productivity to maintain the current low, single-digit GDP growth in the United States.  The responsibilities of the baby boomer generation upon retirement will naturally have to be absorbed by younger generations.  A 2013 study released by the Georgetown Center on Education and the Workforce (CEW) indicates that this trend is already occurring. It cites that there are more job openings created as a result of retirements today than in the 1990s.[2] The U.S. can fuel this productivity by increasing competitiveness in manufacturing, and using competitive advantages such as low energy costs and technological advancements.

Third, an increased focus will be put on fixed income and absolute return investment strategies, especially if the U.S is entering a rising interest-rate environment as many economists believe.  As populations age, their risk tolerance will naturally decrease as people need to plan for their years in retirement.  In 2012, only 7% of households aged 65 or older were willing to take above-average or substantial investment risk, compared to 25% of households in which the household head was between 35-49 years old.  Despite a growing life expectancy, the retirement age is still 65. This has major causes for concern for social security, capital gains tax policies, and corporate pension plans.  Subsequent generations will need to place an increased importance on individual retirement saving should the program terms change, or disappear altogether.

Part two of this blog will look at two additional trends of urbanization and wealth inequality.


[1] Health Affairs.  National Health Expenditure Projections, 2012 – 22: Slow Growth Until Coverage Expands and Economy Improves. September 18, 2013.

[2] Georgetown Center on Education and the Workforce.
http://cew.georgetown.edu/failuretolaunch/. September 30, 2013.

The Importance of Generational Listening

CoyneJohn E. Coyne, III, Vice Chairman, Brinker Capital

I had the opportunity to speak on a panel at the Nexus Global Youth Summit in New York City last week. More importantly, I had the chance to listen to and speak with a number of those in attendance.

Nexus is a global movement founded in 2011 whose network consists of over 1,000 young philanthropists, social entrepreneurs and influencers. Their unified goal is to increase and improve philanthropy and the social impact of investing. They come from more than 60 countries and represent more than $100 billion in assets. They have the commitment, intelligence, passion and clout to act on it.

I was in awe of the debate and discussion I witnessed among these ambitious, young leaders.  What they shared, how they felt, how they deviated from each other in plan but matched in vigor and passion—it was among the most intelligent discourses I have listened to in some time. The mindset of the social entrepreneurs in attendance turned the ways I have defined this area upside down.

If financial advisors, family offices and wealth managers wish to remain relevant, it is incumbent on us to help facilitate the dialogue within and across generations, understanding that if properly equipped, this rising generation will accomplish things on an unprecedented global scale. And if we, the Baby Boomers and Gen Xers of the world, don’t adapt to the methods of investing and communicating they are evolving towards, we will be left in the dust.

I want to thank Logan Morris at Snowden Capital for including me and congratulate Rachel Cohen Gerrol on this incredible event. I must give a particular shout out to the woman who spoke from Kopali Organic chocolates.  They are delicious, and you have made a convert.

7.30.13_Coyne_NexusSummitFor a more in-depth look into this year’s  Global Youth Summit, please read this event summary published by Forbes, or take a page out of the Generation Y book and check out their Facebook page.

In Case You Missed It

Wallens, JordanJordan Wallens, Regional Director, Retirement Plan Services

By now you’ve no doubt heard all about the latest dreadful returns from our nation’s stock market. The first five months of 2013 have been historically galling for most American investors. Wait, what? Am I talking about the same roaring stock market you’re talking about? Yes! And, no.

Yes, clearly the U.S. Equity market has exhibited one of its vintage thoroughbred rallies this year. But no, sadly, it turns out the average American saver largely missed it. How can this be?

Now, throughout this banner season for equities, the largest holding in the majority of Americans’ overall asset allocation has been Cash—which is earning zero. Now lest one dismiss this truth as some other generation’s problem, to be clear: this misbegotten tail-chasing ‘bet on cash’ situation pervades across ALL age groups, right through Generation Y.

It’s like we’re our own worst enemy, because when it comes to investing, most of us are.
The problem is that savers tend to move in backward-looking, frightened herds. Which is wise…if you’re the prey.

But we invest not for short-term survival. We invest to advance long-term purchasing power.

Relax, it’s not life, just money. Money you’re not even using. That and, though it takes awhile to adjust, as a species we haven’t been hunted by predators in some time. (Pray that multi-millennial ‘food chain’ rally knows no end.)

5.30.13_Wallens_InCaseYouMissedItWhen it comes to our money, we largely still don’t get it. It’s why even Warren Buffett and Bill Gates get advice. If investors were a baseball team, they would position all eight of their fielders in the spot where the previous opposing batter’s hit had landed in preparation for the new batter at the plate. Helps to explain why an Institutional fund investor captures 90%+ of the upside in a given mutual fund, while the Retail investor deprives himself via bad behavior of fully 75% of all the long-term gains suffered in the very same mutual fund.

In spite of the adage, the average investor left to his own devices will systematically buy high and sell low every time. And why? Foremost among them, we fear present losses many, many times worse than we covet future gains. This asymmetrical analytically unsound ‘loss aversion’ leads to frenzied investor behavior, which rarely works out well. Ergo, this glorious pan-rally is the worst news in awhile, for those damaged capitalist souls who needed the help the most.

5.30.13_Wallens_InCaseYouMissedIt_2Meanwhile the S&P 500 inconspicuously peels past the thousands like a freight train. Forceful, if not fast. It’s working out great for the professionals, and those who stuck to good advice, those who stuck to their plans, timetables, discipline, and personalized their benchmarks. They never left, and as you have probably observed, historically the majority of the market’s best days/quarters strike closely behind the worst. Miss those best 10 or 20 days, and you forgo a significant chunk of your long-term returns.

Fortunately, with each passing day, more and more investors succumb to longer-term logic and get back with the program—their program. Which is a good thing, as long as you orient your benchmarks around your tested personal risk tolerance and remember your time frames. Then, most important of all, stick to your plan.