International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, August 19, 2014

Shortage of Financial Advisors For Increasing Client Pool - Are the Law Students Prepared For This Career?

Edward Jones to Fund Series 7 Course for College Students (see ThinkAdvisor's article)


FINRAIn an effort to address the increasing concerns of a shortage of financial advisors, Edward Jones announced Thursday its commitment to fund a credit course that prepares students to take the Series 7 exam ....

Edward Jones points out a 2014 study by Cerulli Associates that says more than one-third of U.S. financial advisors plan to retire over the next decade, and more than 237,000 new financial professionals will need to be added to keep up with the demand of retiring baby boomers.

Yet, the advisor population is expected to grow only 27%, or 60,300 new financial advisors, according to a 2014 report from the Bureau of Labor Statistics.

Are there opportunities for law graduates within wealth management and financial advisory? 

“The 10,000 baby boomer that reach retirement age each day in America are waking up to the probability that they will outspend their retirement plan designed twenty or thirty years ago, forcing a drastic reduction in quality of life style for the ‘golden years’” revealed William Byrnes, author of National Underwriter’s Tax Facts Library.  Cerulli Research Finds 53% of Advisors Clients are between 50 and 70 Years Old."

According to new research from global analytics firm Cerulli Associates, 43% of all financial advisors are either at or are approaching retirement. “The average age of all financial advisors is 50.9 and 43% are over the age of 55,” reports Kenton Shirk, associate director at Cerulli. “Nearly one-third of advisors fall into the 55 to 64 age range.”

In their latest report, Advisor Metrics 2013: Understanding and Addressing a More Sophisticated Population, Cerulli focuses on advisor trends and consumer information, including market sizing, advisor product use and preferences, and advice delivery.

“As the advisor population ages, broker/dealers and custodians are at risk of losing AUM as advisors exit the industry,” Shirk explains. “The independent channels are most at risk because they have the oldest advisors on average.” “Broker/dealers continue to struggle to recruit new young advisors into the industry to offset those advisors who are nearing retirement,” Shirk continues.

Cerulli suggests firms encourage advisor teams to bring in junior advisors and train them in a specific area of expertise in order to increase the success rate of these new recruits. To guard against asset attrition, broker/dealers and custodians need to provide support and resources to help advisors tackle succession planning, and development of internal succession candidates.

Increasing pool of retirement clients, high net wealth individuals, and wealth transfer

“By example, social security increases since Ronald Reagan’s presidency, when many Baby Boomers crafted their family retirement plans, did not keep up with the actual inflation.  Also, baby boomers are outliving their retirement plans by ten or more years”, continued William Byrnes.  “Stretching the retirement savings available for an additional twenty years of life expectancy requires correctly managing the complex retirement taxation rules established by Congress and the IRS.  

Are law graduates prepared to be these advisors?

Robert Bloink added, "Lawyers are just as apt to this advising as accountants and financial planners, but most law students skip over courses in the wealth management field that will prepare them for such positions with firms.”

IRA rollover contributions have reached well over $300 Billion.  Thus, generally baby boomer clients have IRA questions: How are earnings on an IRA taxed? What is the penalty for making excessive contributions to an IRA? How are amounts distributed from a traditional and from a ROTH IRA taxed?  How is the required minimum distribution (RMD) calculated?”

“By example of managing the retirement taxation rules, if the baby boomer engages in a prohibited transaction with his IRA, his or her individual retirement account may cease to qualify for the tax benefits.  Thus, then baby boomer needs to understand what is a prohibited transaction?  When can the baby boomer tax pull retirement funds as a loan from a retirement account or policy without it being prohibited?”

"But very few law graduates that my company interviews studied advanced planning and thus can't sit down with clients to address these tax and financial advisory questions." 

What must law graduates know for these careers?

Dol“For complex modern families with multiple marriages and various children, a retirement and estate planner should analyze the non-probate assets”, interjected Dr. George Mentz of the American Academy of Financial Management which is mentioned as an association for information on the Department of Labor website.  “Such assets may include the client’s 401k, 403b, 459, annuities, property and joint tenancy, among others.  Regarding insurance policy designations, the client may need to reexamine the beneficiaries, contingent and secondary, and percentages among them, based on current circumstances.

"If law students want a career as a financial advisor or financial analysts-wealth manager, they need to have followed a tailored wealth manager curriculum that, at a minimum, will allow then to both pass a Series 7 after the Bar and to understand wealth planning.  Until that happens, these advisor positions will continue to go to MBAs who have more opportunities to follow either financial planning or wealth management curriculums.”

“Because client’s are outliving their life expectancy and thus outliving their retirement planning, and medical expenses certainly factor into retirement planning, long term care for family members must also be addressed,” said William Byrnes.  "Thus, students interested in these positions need to take estate planning and retirement planning seminars during law school."

“Moreover, recent press has focused client’s attention on tragic incident and end of life issues, such as a durable power of attorney for health care (DPA/HC), living will, or advance directives that explain the patient’s wishes in certain medical situations.  Finally in this regard, a client may require a Limited Powers of Attorney to address situations of incapacity, as well as orderly continuation of immediate family needs upon death.  Again, these are issues that are perfect for an attorney to advise upon." 

Robert Bloink included, “Other important issues to address with the client include pre-marital property contracts/pre-nuptials involving the second marriage(s), IRA beneficiary planning in blended families, spousal lifetime access trust (SLATs), and planning for unmarried domestic partners.”

| Permalink



Posted by: Batong Moses | Aug 21, 2014 8:30:03 AM

Post a comment