Grads prefer small firms and expect, initially, to toil in the back office. The prospect of helping clients was the main thing that attracting students in Texas Tech University's Personal Financial Planning program to the independent investment-advisory profession, according to a survey by RIA custodian Schwab Institutional.

More than half of the students surveyed -- 51% -- gave "helping people in a meaningful way and putting clients' interests first" as a primary motivation from becoming an investment advisor. "Making a good living" placed second on the list of reasons to become an advisor, but only 15% of respondents put it down as the main reason.

The survey of 160 students was conducted in May 2008.

Fiduciary

"Putting clients' interests ahead of everything else is one of the key cultural principles of the independent investment-advisory industry," says David Welling, Schwab Institutional's v.p. of advisor-practice management. "It's wonderful to find that putting clients first is a significant motivator for the next generation of advisors, because one of the most important issues for advisors looking to hire staff is finding employees who fit with their firm's culture."

The financial-planning students also expressed a clear preference for starting their careers at small firms. More than 70% of them preferred to work at boutiques specializing in financial planning or private-client portfolio management and 57% said firms with fewer than 35 employees suited them best. Only 7% of those asked said they'd prefer to work at firms with more than 75 employees.

As for employer criteria, 58% of the respondents said compensation was the most important reason to choose a specific employer, and 49% said they were looking for work opportunities that meshed with their desires to "to have a healthy work/life balance."

As for starting compensation, 62% figured they would be making between $35,000 and $55,000 a year as newcomers to the investment-advisory profession -- and 64% of them expected to spend their first few years handling back-office tasks like managing trade requests and entering client data while, now and then anyway, helping to create financial plans for clients. Only 15% thought they'd have direct responsibility for managing clients within the first two years in the business; only 10% saw themselves having management responsibility at a firm.

Modesty

"Students preparing to enter the investment advisory industry seem to be very level-headed about their expectations for entry-level roles and responsibilities," says Deena Katz, an associate professor of financial planning at Texas Tech. "But we also found that they have a strong desire for quickly increasing levels of responsibility, independence, and client contact."

In fact, after four to five years in the business, today's students expect to see a sharp increase in responsibility and direct interaction with clients. By that time, 82% of them thought they would be managing portfolios, 73% believed they would be " be independently responsible for a group of clients," 61% expected to involved in business development, and 57% thought they'd have some responsibility for managing the firm.

"Independent advisor firms are seeing continued strong growth, which is driving their need to hire additional staff and build capacity," says Welling. "According to Schwab's most recent benchmarking study, 72% of advisor firms cite staffing issues as a key barrier to growth, making the next generation of advisors an important resource pool for firms to tap."

At the end of 2006, nearly 16,500 independent RIAs managed $2.1 trillion in the U.S., according to industry sources. Between 2001 and 2006, RIA assets grew by 66% and the number of RIA firms grew by 33%.

Scholarship

Last year, the Charles Schwab Foundation pledged $1 million to Texas Tech's Personal Financial Planning program.

Part of the contribution -- about $250,000 -- was earmarked for building a high-tech teaching lab for the school's financial-planning students.

The rest is to fund a fellowship to support doctoral or post-doctoral research by Personal Financial Planning students. The first "Schwab Research Scholar" is Danielle Winchester, a doctoral candidate, who is analyzing investment-advisory criteria for just-out-of-school hires with a view to improving financial-planning school curricula.

Preliminary results of Winchester's research are expected this fall. The final report -- her thesis -- is  due in the spring of 2009.

Schwab Institutional is a division of San Francisco-based Charles Schwab. -FWR

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