Attracting smart, motivated young people is not easy.
Whether you’re a person, company or profession, it requires a unique proposition. Basically, you need to be attractive. When it comes to professional services, it also helps to be big.
In that context, recent figures from WealthData revealing that only 163 advisers or provisional advisers have entered the industry since 2019 is a major concern with serious implications for the industry and society.
On the eve of the nation’s largest intergenerational wealth transfer in history, and against a backdrop of regulatory complexity, record household debt and climbing superannuation balances, advisers are an increasingly scarce resource.
As such the industry’s capacity to help more people and capture growth opportunities is constrained.
While comedians commonly make fun of accountants, auditors and actuaries, the joke is on us because in 2019, 38,000 Australians enrolled in accounting programs and over 9,000 graduated from university, TAFE or private training organisation.
The top five employers are Deloitte, KPMG, EY, PwC and BDO Australia.
Similarly, 8,500 Australian law graduates (LLB and JD) started employment or entered the job market in 2018. Many joined a large, brand name legal firm or corporate.
In medicine, there were 3,515 intern posts in Australia in 2020, most allocated to hospitals.
For the accounting, legal and medical profession, one of their biggest challenges is finding jobs for graduates, with demand outstripping supply.
Looking good is not enough
As the volume and pace of regulatory change inevitably subsides, the advice industry’s attention needs to shift to recruitment.
But it’s not simply a case of becoming more attractive.
While it often feels like the advice industry is scandal prone, every other industry and profession faces regular scandals too yet they’re still able to attract talent. Why?
Historically, the banking institutions did the lion’s share of recruiting and training. Putting aside their motives, their size and resources enabled them to offer a compelling employee value proposition including a decent salary, career progression, ongoing training and development, and perks like flexible hours, gym memberships, and maternity and paternity leave.
But with the banks all but gone, the remaining mix of small-to-medium-sized businesses aren’t set up to do this.
A small practice with $500,000 in annual turnover and a principal taking home $200,000 per year does not have the capacity to hire a junior on $65,000 per annum and spend time mentoring them.
As a general rule of thumb, advisers have to bill at least double their salary, in this case $130,000, for a business to recover the cost of overheads including licensing, rent and training. They need to bill three times their salary in order to deliver a decent return on investment.
From a standing start, it would take any one years to build up that kind of fee income.
Not surprisingly, small businesses baulk at the idea of mentoring a graduate through their professional year. Advisers say mentoring a new recruit under the current regime takes up around 20 per cent of their time. Not many advisers I know have that to spare.
While small firms are the lifeblood of advice, the industry’s ability to recruit talent and grow hinges on whether it can build and sustain large, profitable businesses akin to the mid-tier in accounting and professional services.
Licensees can play a critical role by working with advisers to corporatise and grow their businesses.
Ironically, advice has a stellar track record of retaining talent. Advisers generally like what they do. They don’t leave to become accountants.
While a large exodus is underway, this is primarily linked to higher education requirements rather than job dissatisfaction.
Yet in most other professions, there is a steady stream of practitioners leaving high-paying roles to pursue a career change to seek greater fulfilment and work / life balance.
In time, as advice becomes an established profession and large, corporatised businesses emerge, capacity will expand.
Technology will also play a significant role in generating scale and capacity. Licensees with the capital, resources and experience have an important role to play in supporting advisers to grow their businesses and invest in people and technology.