Advisors, I’ve got good news for you. You’re not like lawyers, of whom many jokes say there are too many. The opposite is true for advisors. There aren’t enough.
Data indicate that the number of registered investment advisors in the U.S. was flat in 2023 relative to the year earlier figure. That’s an ominous statistic when considering many advisors are baby boomers, meaning, as is the case with many of their clients, their inching closer to retirement. Yes, many advisors have succession plans in place or will sell their practices.
However, those scenarios don’t pertain to the industry as a whole. For every advisor that retires, there’s not another one waiting in the wings. In fact, it appears as though it takes several, perhaps a couple dozen of advisor retirements to generate replacement of just one or two.
Making the lack of new advisors entering the arena all the more concerning are factors such as more young investors wanting professional advice and the great wealth transfer – both of which arguably should be compelling more folks to become advisors.
Tale of the Tape
Recent data from Cerulli Associates confirms that advisor replacement is an issue that could eventually confound the industry, and more importantly, clients and prospects.
“Over the next decade, 109,093 advisors plan to retire, comprising 37.5% of industry headcount and 41.5% of total assets,” notes the research firm. “Meanwhile, the rookie failure rate hovers around 72%. As the industry grapples with such a low success rate for new advisors entering the industry, firms must grow their talent pipeline and better communicate the role and training timeline of a financial advisor.”
One way to solve the dearth of new advisors is for practices to enhances efforts to retain new advisors while drawing more younger professionals into the space.
“According to Cerulli, only a small portion of rookies (13%) join the financial advice industry as the first job in their career; however, 40% of rookie advisors work in the financial services industry prior to becoming an advisor,” adds Cerulli. “To this end, professional networking and referrals could be as critical for firms building a pool of potential advisor candidates as it is for those looking to become financial advisors—nearly one-third (32%) of rookie advisors were referred by a personal contact.”
Nurturing Is Necessary
While the work habits of younger demographics have earned bad reputations, those assertions are broad and it pays to remember at least two factors. First, data confirm many people want to work with advisors. Second, younger folks are the future of the industry.
On those notes, it’s vital for practices to foster nurturing environments for new advisors and that doesn’t imply “Pollyanna” behavior. Rather, it’s about mentorship and developing professional responsibility.
“A strong partnership between a rookie advisor and their firm is often a key reason behind successful development,” says Andrew Blake, associate director at Cerulli. “Rookies rely upon strong mentorship from their peers, exposure to successful financial advisors, and increased training on various financial planning topics. It is crucial for RIAs and B/Ds 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 advisor.”