Wealth management is struggling to retain new advisors, and the effects could be catastrophic for an industry that is already aging up.
According to a new report by wealth and asset management research and consulting firm Cerulli Associates, the number of new advisors entering the industry is barely offsetting retirements and trainee failures. This means that financial services firms need to focus more than ever on developing sustainable talent pipelines, said Cerulli.
New employees are the lifeblood of any industry, but this is particularly true for wealth management. “It’s a very large crisis,” Stephen Caruso, a research analyst at Cerulli, told RIA Intel. “The [wealth management] industry has started adapting and understanding that it needs to shift recruiting pipelines and make stronger forays into different spaces to gather more qualified recruits, but at the same time build better pathways within their firms to make the financial advice profession more appealing.”
According to Cerulli, 106,264 advisors plan to retire within the next 10 years. This is about 36 percent of the total industry headcount and represents close to 40 percent of all advisory assets.
But the high retirement rate is only part of the story. In 2022, close to 75 percent of rookie financial advisors — defined as having three or fewer years in an advisory role — failed or left the industry. This failure rate, combined with the high retirement rate, meant that advisor headcount grew by just 2,579 in 2022. With little headcount growth and close to two-thirds of all rookie advisors washing out or leaving the profession, Cerulli estimates that $11.9 trillion in assets are in danger of leaving the practices of retiring advisors.
However, the situation isn’t all doom and gloom. Cerulli says that RIAs can and should take action now to stem the attrition and invest in the next generation.
To do this, financial services firms need to develop better and more sustainable talent pipelines that capture a wider range of talent. About half of junior advisors reported that their duties include managing small-balance accounts for senior advisors, which is great in the beginning but can inhibit them over the long term, said Caruso.
“[Junior advisors] work with senior advisors and learn the ropes, but at a certain point, you have to be able to help elevate that advisor to manage their own clients, build their own book, and give them the autonomy to be an advisor,” said Caruso.
According to Cerulli, 69 percent of junior advisors are responsible for building their own client base from scratch. Providing a structured training program can help create a defined path that will allow firms to “gradually shift rookie advisors into production and provide a natural progression of their roles and responsibilities.”
This is particularly true for RIAs, which are often small businesses. Caruso said that junior advisors at RIAs also need to know that there are pathways that will help them grow and stay with the firm.
“In the national or regional channels [and] wirehouse channels, there are large recruiting programs, with classes of 3,000 junior advisors starting at a Merrill Lynch or a Morgan Stanley, for example,” Caruso said. “RIAs really don’t have that, and as the space develops and matures, larger RIAs have to make the investments needed to build new advisor programs and get people in the door and into the profession.”
Training in financial planning topics was rated the most crucial factor for success by rookie advisors, with 71 percent stating it was very important. Sixty-four percent of rookie advisors also rated exposure to successful advisors as very important, while 60 percent rated mentoring from an established advisor as very important.
