The number of new financial advisers barely offsets rookie washouts, underlining the need for the industry to attract and retain talent, according to The Cerulli Report—U.S. Advisor Metrics 2023, released Tuesday. As a solution, the consultancy encouraged advisory firms to develop their talent pipeline, as well as to improve communication and training.
Cerulli found adviser headcount remained largely unchanged in 2023, with only a 2,706 increase in 2022. Previous Cerulli research revealed last year brought a 1.9% decline in the total financial adviser headcount. However, the upcoming decade will see the planned retirement of 109,093 advisers who make up 37.5% of industry headcount and 41.5% of total assets, the firm reported.
While 18% of respondents hope for rookie advisers to succeed them, the report estimates a five-year rookie exit rate of nearly 72%. To combat that massive attrition rate, Cerulli’s report states that training programs, professional development and mentoring are imperative, as they will allow rookie advisers to transition into productive roles, rather than being confined to support positions.
“A strong partnership between a rookie adviser and their firm is often a key reason behind successful development,” Andrew Blake, an associate director at Cerulli, said in a statement. “Rookies rely upon strong mentorship from their peers, exposure to successful financial advisers, and increased training on various financial planning topics. It is crucial for [registered investment advisers] and [broker/dealer]s to continue to develop programs and training methods to aid rookies in financial planning and other skills to adequately prepare them as they embark upon a new career as an adviser.”
Good Humans Needed
Cerulli’s findings emphasized the importance of not overlooking the human aspects in succession planning for advisers. The emotional challenges of transferring clients to a new adviser are the most common challenge for practitioners (93%), but there are ways of evaluating a new adviser.
According to the data, the key criteria for evaluating potential successors are:
- Prioritizing clients’ interests (93%);
- Establishing chemistry with clients (87%);
- Considering personality (80%); and
- Assessing regulatory/compliance records and financial planning philosophy (70%).
It is also important for advisories to realize that most people will come to the advisem*nt career from elsewhere in finance. Only a small portion of rookies (13%) join the financial advice industry as the first job in their career. Many rookie advisers (40%) work in the financial services industry prior to becoming an adviser.
To this end, Cerulli says professional networking and referrals could be as critical for firms building a pool of potential adviser candidates as it is for those looking to become financial advisers. Nearly one-third (32%) of rookie advisers were referred by a personal contact.
More Sellers
The results of this shortage may only increase already rampant mergers and acquisitions in the financial advisem*nt space. Given the lack of new advisers, Cerulli anticipates many will choose to pursue an external sale for the future of their firm.
Among advisers with less than a 10-year horizon, 14% plan for an external sale, which is most common among independent practices. Another 26.2% have identified an adviser within their practice as their successor. Meanwhile, 26% have not developed a formal plan. Of this group, Cerulli noted that many will likely result in additional external sales.
“Senior advisers [should] ensure sufficient learning opportunities are provided to younger team members for experience in client-facing and asset-gathering roles,” Cerulli recommended. “Granting rookies opportunities for development better positions a practice for a potential transition, as well as achieving process continuity and job satisfaction, which will lead to longer-tenured staff.”
Each report is authored by a senior Cerulli analyst and incorporates qualitative and quantitative inputs based on Cerulli’s proprietary research process.
FAQs
Advisor headcount was largely unchanged in 2023 as the number of advisors grew by just 2,706 in 2022, according to The Cerulli Report—U.S. Advisor Metrics 2023. The number of new advisors barely offsets trainee failures and retirements, emphasizing the critical need for the industry to attract and retain talent.
Why financial advisors are quitting? ›
Lack Of Fulfillment
They are required to spend their days selling products and services they don't believe in. Far too many advisors find themselves working 9-5 (or worse) at a job that doesn't fulfill them or make them happy.
What is the long term outlook for financial advisors? ›
The Bureau of Labor Statistics has projected that 42,000 new financial advisor jobs would be added between 2022 and 2032. That will increase the total number of positions 13% over the decade from 227,600 in 2022 to 369,600 in 2032.
Are financial advisors declining? ›
More than a third of financial advisors will retire — leaving a profession in which nearly three out of every four rookies fail to break into the field — with more than two-fifths of the industry's client assets up for grabs upon the older generation's exit, according to a report last month by research and consulting ...
What is the average age of a financial advisor? ›
According to various studies and publications, the average age of financial advisors is somewhere between 51 and 55 years, with 38% expecting to retire in the next ten years.
Why is being a financial advisor so hard? ›
Being a financial advisor is hard work, you have to keep up with the markets, industry trends, and be able to make quality decisions for your clients' portfolios. It's not done without having a strong mind and an even stronger stomach at times.
Is there a future for financial advisor? ›
The future of financial advisory lies in the ability to build and maintain loyalty not just with the current generation of clients, but with their successors as well. This requires a shift in both mindset and practice as advisors begin embracing a more comprehensive approach to client engagement.
Why do most financial advisors fail? ›
As a financial advisor, it takes hard work to attract clients and even more work to keep them. Clients can part ways with their advisors due to poor communication, mismatched expectations, underperformance, lack of personalized advice, trust issues, high fees, and inadequate financial education.
Do people still need financial advisors? ›
A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.
What is the highest paid financial advisor? ›
Wealth management is one of the highest-paying financial advisor jobs. They work with high-net-worth individuals and families to manage their investments and assets. Plus, they provide personalized investment strategies and financial planning services to help clients achieve their long-term financial goals.
It's unlikely that AI will replace financial advisors and financial planners. Investment is still a human activity, driven by emotion and uncertainty, which means that there are no “right” answers that a computer can solve.
Why do financial advisors make so much money? ›
Commissions. In this type of fee arrangement, a financial advisor makes their money from commissions. Advisors earn these fees when they recommend and sell specific financial products, such as mutual funds or annuities, to a client. These are often payable in addition to the above client fees.
Will financial advisors be obsolete? ›
If you're wondering whether doom and gloom stories about financial advisors becoming obsolete, here's some reassurance: people will always need financial advice.
What percent of millionaires have financial advisors? ›
The study reveals that 70% of millionaires work with a financial advisor, compared to just 37% of the general population. Moreover, over half (53%) of wealthy individuals consider their financial advisors their most trusted source of financial advice.
Will there be a shortage of financial advisors? ›
Nearly 40 percent of financial advisors are expected to retire in the next decade, and the replacement rate is not keeping up. Based on those simple facts, it's plain to see the wealth management industry is on the cusp of a demographic nightmare.
Are financial advisors in high demand? ›
Job Outlook
Employment of personal financial advisors is projected to grow 13 percent from 2022 to 2032, much faster than the average for all occupations. About 25,600 openings for personal financial advisors are projected each year, on average, over the decade.
Are financial advisers in demand? ›
Financial planning is about helping people achieve their financial and lifestyle goals. If this sounds like the career for you, it's the perfect time to take a leap: changes to the industry have created a boom in opportunities for qualified financial planners.
Is there a shortage of finance professionals? ›
Finance—and accounting especially—are experiencing a shortage of qualified professionals. The number of graduates choosing accounting as a major has declined since 2016. The WSJ reports that 82% of the accountants who exited the profession in 2023 had at least six years of experience.
