'Next gen' advisers warned to get social or get out

They're better educated and more digitally savvy, than the veterans who dominate the sector. But will next-gen advisers, devoid of social graces, fail in the quest to retain clients.

by Mark Story


Over the next 15 years an army of glossy new entrants to the industry is expected to replace old school advisers, half of whom are in their 50s and many of whom entered the industry with the barest of qualifications.

Financial Planning Association of Australia figures suggest that for every 600 advisers retiring annually, there'll be around 1100 young guns ready to step into their shoes.

The FPA expects the exodus of advisers from the industry to spike over the next few years, as the older-guard choose to exit rather than go back to school to satisfy pending minimum education criteria.

Assuming proposals within a Parliamentary Joint Committee Report (PJC) on Ethics and Professional Standards are approved, advisers will have until 2019 to transition to proposed
new standards, which – among other criteria – include some type of university degree qualification.

Some bank-owned dealer groups have chosen to pre-empt PJC recommendations and have imposed their own upskilling requirements, regardless of the outcome.

That's great news for Australian investors who despite financial literacy challenges refuse to pay for financial advice. There'll not only be more advisers to go around, they'll be better qualified than ever. But there's growing concern that the next generation of advisers, who approach the advice business from a completely different dynamic, will end up on a collision course with their fee-paying clients.

Admittedly, "next gens" who literally grew up online may be better at communicating with other next gens. After all, by 2030 they're expected to control 70 per cent of the net wealth of Australia.

Meantime, however, the jury's out on whether they're sufficiently equipped with the softer skills – the human touch, the ability to listen, display empathy and work with people – to pass muster with clients, a lot of whom are two generations senior.


Culture clash


Ron Malhotra, managing director of Melbourne-based Maple Tree Wealth Management, fears a potential clash of cultures will make it increasingly difficult for this new breed of advisers to either maintain existing clients or win new ones.

He suspects much of next gen's zealousness and technical proficiency will be overkill for everyday Australian investors desperate to be nurtured and loved. Given some of the credibility issues confronting the sector, Malhotra recommends new young advisers spend more time earning the trust necessary to forge deep and meaningful relationships with their clients.

Malhotra suspects that inexperience, together with undeveloped interpersonal skills – plus insufficient grasp of their fiduciary responsibilities – will make it hard for clients to take next-gen advisers seriously. The bigger the generation gap between advisers and their clients, he says, the greater the confidence issue is likely to be.

Within an environment where portfolio performance is likely to disappoint, and knowledge is becoming a commodity, he says all advisers are being forced to reconsider where and how they add value, beyond the transactional stuff. He urges next gen advisers to heed FPA research which proves that the quality of the professional relationship, knowledge transfer and peace of mind are valued more highly by clients than financial performance itself.

"The downside of growing up online is a likely lack of people skills and as the industry moves from technical to holistic advice, the need for softer skills will only become more acute," Malhotra says.

One key area witnessed by Malhotra where next gen advisers often appear unprofessional is their preoccupation with needing to justify their position. He attributes their tendency to
provide clients with information overload to a sales culture, fostered by an industry which remains heavily oriented around product.

While the industry does try to teach softer skills through the sales process, he says it's typically robotic, excessively focused on the numbers, too scripted and discourages natural listening ability. After undertaking sales training, Malhotra found he had to unlearn some unnatural behaviour preventing him from developing more meaningful relationships with clients.

"People have an aversion to scripted process and artificial rapport building," he says. "A good adviser has to be naturally empathetic, but when they're too focused on the sales process, they can miss important verbal and non verbal cues, including knowing how to ask the right questions."

While next gen advisers can learn to display people skills, Malhotra says they will never replace a genuine interest in learning about people, and warns advisers to exit the business if they lack this.

Mike Sikar of Sydney-based Delta Financial Group regards the migration to holistic advice as part of the morphing of advisers into life coaches. While a growing number of clients are empowering advisers to take a much wider view of their financial wellbeing, he says next gens who don't "get social" could miss out.

"Being a financial life coach is all about correlating every single investment decision to a client's underlying dreams, goals, lifestyle – plus their current financial situation," Sikar says.
Beyond 'the money stuff'

Financial advisers, young and old, struggle to plunge beyond the transactional stuff and adopt a "value-investing" approach designed to deliver more qualitative outcomes beyond the singular pursuit of wealth, he says. Next gen advisers who only deal with "the money stuff" must work on their inability to get to know clients on a much deeper and more personal level.

"While they used to be dismissed as the 'warm fuzzies', a growing number of financial advisers now recognise that helping clients indentify and implement life plans, dreams and personal values goes hand in hand with long-term wealth creation," Sikar says.

Dr Mark Sinclair of Mentor Education says next gen advisers who get the balance right between digital applications, like video emails, social media posts and data mining to segment client databases – together with empathy, competence and a real connection with clients – are more likely to create a competitive business advantage.

He says the best way for next gen advisers to fine-tune their soft skills is to find a mentor or join a mentorship program. "There are so many advisers out there with amazing skill sets who have never been approached," says Sinclair. "Identify your gaps, and find people who demonstrate the strengths you'd most like to share with clients."

To help plug the social skills gap that neither university degree qualifications nor mandatory membership [to a professional body] will deliver, the FPA is proposing new entrants also
complete their first year under professional supervision. Dante De Gori, the FPA's general manager of policy and conduct, says the best way to do this is through a program where rookies learn from their more experienced colleagues.

While De Gori concedes that many next gen advisers do have social-skill issues, he says they're no different from many doctors or other professionals who also need to acquire them over time.

"Older advisers pointing the finger at next gens probably lacked social skills when they started off, too," De Gori says.

"But next gens will be in a better position to capture the best of both worlds; the digital frontier and the need to 'get social' – this is the future of financial planning."