The time has finally come.
For years, many in the wealth management industry have warned about the consequences of an aging workforce and a dearth of young people entering the profession to replace them. But the problem has felt distant. At least until now.
After several years of flat growth–the number of financial advisors hasn’t grown or shrunk by more than 1% since a 3% decline in 2012–a wave of advisors are set to begin retiring in 2021, according to a recent report by Cerulli Associates.
The Boston-based research and consulting firm projects the total number of advisors will decline 0.4%, 0.9% and 1.4%, respectively, in the coming three years, translating to thousands of professionals. Over the next 10 years, Cerulli estimates more than 111,500 advisors will retire representing more than one-third of the workforce and assets.
The industry shouldn’t lose hope though. Cerulli thinks it can combat the effects of the retirement wave.
“As advisor retirements begin to accelerate, so does the need for innovative recruiting and retention strategies. Broker-dealers and independent firms are struggling to attract enough new advisor talent to adequately replenish their existing advisor forces,” the report says.
Wealth managers might start by better communicating that they don’t just advise clients on investment management, they help them with all kinds of things. The objective of many advisors is to help clients identify and achieve their goals, a mission that resonates with a broader group of professionals.
Women are 11% more likely than men to be financial planners and 92% of rookie advisors say a desire to help people reach their financial goals were a “major factor” that led them to become an advisor, according to Cerulli.
“As the next generation of advisors enter the industry, many will do so with the goal of providing comprehensive financial advice to their clients, and will be underserved by firms that direct their training heavily toward product knowledge and sales strategies,” the report states.
But individual corporate efforts to attract more diverse professionals to the industry won’t be enough to overcome the losses due to retirement.
“To enact meaningful change, firms will need to collaborate—not compete—on diversity and inclusion efforts. By sharing their experiences, firms can more effectively find and implement strategies that work. Although firms must be prepared for progress to be gradual, a unified movement—driven by organizations that can bring together firms to develop cohesive strategies, engage in advocacy, and test ideas—will accelerate the pace of change,” according to Cerulli.
The advisors facing retirement in the next 10 years aren’t problem-free either; 22% are unsure of their succession plan, according to Cerulli. However, it’s far from their most pertinent concerns. Charles Schwab’s 2019 RIA Benchmarking Study showed the majority of RIAs (92%) are considering an internal succession plan. But only 13% of firms said developing or enhancing a succession plan was a top-three priority, making it the least favorable.
It’s also possible some advisors delay and retire later than observers anticipate, albeit to the detriment of the industry.
“People in our industry really like what they do and they like the clients they do it for. You add recurring revenue on top of it, with a pretty reasonable work week, and the plan becomes, ‘I’m just going to do it for another five years.’ We call it the rolling 5-year plan,” David Grau Sr., the president and founder of FP Transitions, a consultant to RIAs, told RIA Intel in December.
