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As financial advisers age, customers worry about who will guide their portfolios

McClatchy-Tribune Information Services

March 21, 2016


PITTSBURGH — In the wealth management world where financial advisers are responsible for handling trillions of dollars in client assets, a significant number of industry veterans are either near or beyond retirement age.

That could spell trouble for some firms that have no plans for passing the torch to a younger generation.

The average age of financial advisers is 50.9 years old and 43 percent of all advisers in the U.S. are over the age of 55, according to Cerulli, a Boston-based research company that focuses on adviser trends and consumer information. Cerulli found nearly one-third of advisers fall into the 55 to 64 range.

"It’s an under-the-radar issue," said Andrew Stoltmann, a Chicago-based securities lawyer. "We always talk about investors getting older. The flip side is advisers are aging as well, and that’s problematic for investors."

While the industry as a whole is faced with this looming quandary, sole practitioners and smaller firms that lack the resources to recruit and train young people are most vulnerable to leaving their client’s assets in limbo or becoming extinct.

As chairwoman and CEO of Hefren-Tilliotson, one of the largest wealth management firms in the Pittsburgh region with nearly $10 billion in assets under management, Kimberly Tillotson Fleming saw the demographics of the region trending younger and decided some years ago to work to diversify her team of advisers to serve a younger population.

Today — thanks to a summer internship program and new hire training — 70 percent of Hefren-Tillotson’s 75 full-time advisers are under the age of 50 and 38 percent under age 40. Fleming hopes that puts her firm on solid ground to grow a client base when other firms cannot.

Hefren-Tillotson has a system that encourages teamwork on client portfolios. New hires typically work three to five years as financial planners on a team, gaining knowledge analyzing estate plans, taxes, insurance, investments, retirement planning and college funding. After gaining expertise and earning the proper securities licenses, they move up to a financial adviser role.

She thinks clients like it because they worry about the future. "As you get older, clients will say, ‘Well, what happens if something happens to you?’ So they like the fact that there is someone older and someone younger working with them."

When her late father suddenly passed away five years ago, Fleming, 57, was a member of his team. Because of that arrangement, the clients he worked with already knew her and were comfortable continuing the relationship. Now her son, Grant Fleming, 27, works on her team.

"I can bring him in and say, ‘Grant will be here to work with you if something happens to me. And he’s here to work with your children, too,’" she said.

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A solution that some small independent financial advisers have found to succession challenges is to sell the company.

Robert Fragasso, chairman and CEO of Fragasso Financial Advisors in downtown Pittsburgh, has been taking advantage of opportunities to buy small advisory firms. In November 2015, he purchased Grandview Investment Management, based outside Pittsburgh.

"(The seller) could retire, but wanted to keep servicing her clients," Fragasso said. "And she didn’t have the will or energy to do all the other duties necessary to manage the business. She also realized her clients were looking at her asking, ‘Where is the backup plan?’

"She continues to work for us, but we merged her business into ours when we bought it," he said, adding that he also is in discussions with other sole practitioners in the region.

Fragasso started his firm as a sole practitioner 44 years ago. It has grown to 45 employees, including 15 advisers and nine portfolio managers with $1.1 billion in assets under management.

In lieu of selling to a larger company, Fragasso said the only other option for the owners of small adviser practices is often to sell to a junior member of the firm. That may mean working with a buyer who will be making multiple installment payments. It can be a risky choice because "the seller doesn’t want to stand by the mailbox every month wondering if the payment check will arrive," he said.

Fleming said hiring and training a younger workforce not only guarantees her firm’s continuation, but the new employees also bring a different perspective on what Hefren-Tillotson’s service might look like for the next generation.

"They are really helpful in us having the right vision for the future on how we need to keep adapting, such as being able to provide certain tools and information to clients in different ways through the use of technology," Fleming said.

"I think what that might mean is we’ll have more Face Time and more Skyping meetings with clients," she said, referring to the video chat services. "It means having information that we can share online when we are having meetings. I just think that the world is changing and young people are helping to change it.

"Some of us are slower to make forward-thinking changes, such as mobile banking. But we have to watch how young people do it. They are very different. So we want to make sure we are really adapting to what their needs will be."