The Changing of the Guard is one of the most popular attractions at London’s Buckingham Palace, a symbolic event that signifies the handover of responsibility for military security of the Royal Palaces in London.
In America, our Changing of the Guard at the Tomb of the Unknown Soldier at Arlington National Cemetery honors all United States armed services personnel.
However, in business the phrase signals a change in leadership. I believe the financial industry is in the midst of experiencing its own changing of the guard as baby boomer-aged CEOs and financial leaders retire.
Many entities are largely unprepared for this change. In fact, according to a 2014 Robert Half survey titled “Many Executives Unconcerned About Near-Term Baby Boomer Retirements,” only 31 percent of CFOs were worried about baby boomers retiring. Of those who were concerned, 39 percent feared loss of leadership, and 23 percent feared loss of legacy knowledge. Whether these CFOs counted themselves as baby boomers is unknown. But we do know that millennials – those born between 1980 and 2000 – make up the bulk of America’s workforce and they are making their move into leadership roles in very non-traditional ways.
A different path
A Financial Executives International spokesperson recently commented that experienced finance executives seem to think young professionals in the industry aren’t following the same path they did to become CFOs. The traditional, you-need-to-pay-your-dues, conservative thinking has in some cases prevented an awareness of the approaching gap in available senior finance leaders.
This is very apparent in the retail automotive space, including in the dealership F&I office or the financial auto lending department. Many rising stars have taken a circuitous route, spending time in non-financial parts of the business or cutting their teeth in completely different industries. Unlike their baby boomer counterparts, millennials will likely change careers and employers two times more than previous generations. While their path may appear different, there is no doubt they are highly educated. According to the American Institute of CPAs, there has been a 19 percent increase in master’s degree enrollments.
A different mindset
Financial management and systems consultant Maggie Martensen says, “Millennials bring a more extroverted, people-centric approach to finance. They’re more highly skilled at their age than previous generations, are able to leverage technology faster and some can navigate change faster.”
The mindset of these new leaders will have a significant impact on retail automotive lending in the coming years. We are seeing more out-of-the-box solutions to traditional auto finance challenges, such as delinquencies. These leaders are open to evaluating new options to protect their loan portfolios outside of APR and loan terms. For example, they have a very personal view of the Great Recession. As a result, consumer-protection products have greater perceived value and are accepted as a means toward revenue and loan growth.
Millennials also have a very different mindset toward their personal finances. Saddled with student loan debt and the challenges of growing their families, research fielded by Cox Automotive and Deloitte reflected that:
· Millennials made up 36 percent of the lending market in 2016.
· By 2019, millennials will account for 40 percent of new vehicle sales.
· 39 percent of millennials who submitted credit applications through Dealertrack’s network were subprime.
· Almost 60 percent of millennials set a budget before looking at vehicles, compared to 46 percent of Generation X and 40 percent of baby boomers.
· More than 83 percent of millennials said an affordable monthly payment is very important when selecting a lender.
With millennials assuming leadership positions in lending, they will be better suited to work more closely with their age-range counterparts across the desk. The task for current leaders at the lender and dealership level is to work with them! Now more than ever, we need to listen to these younger colleagues and be willing to at least give their suggestions a try. Involve them in adopting new technology and modifying processes for speed and flexibility.
I’m not advocating throwing the baby out with the bath water, but we should be better prepared for this changing of the guard.
Brien Joyce is VP of lender services at EFG Companies.