Even as millions of baby boomers join the ranks of the retired — increasing the demand for financial advice significantly — the nation's pool of advisers continues to shrink.
Like their clients, many financial advisers are near or at retirement age, and the industry as a whole is unable to replace them as fast as they are leaving, according to observers.
“We're seeing a graying of the adviser population, and fewer firms have training programs to bring new people into the business,” said Howard Diamond, managing director of Diamond Consultants LLC, an executive search firm.
Demand for experienced advisers “is through the roof,” he said.
The total number of advisers fell to 316,109 last year, from 323,566 in 2010, a 2.3% decline, according to the most recent annual adviser head count by Cerulli Associates Inc. Compared with 2004, the first year that Cerulli began keeping track, head count is down nearly 7%.
At the current pace, the number of advisers will drop to below 300,000 by 2016, the Cerulli numbers show.
“Assets are consolidating among a fewer number of advisers,” said Cerulli senior analyst Tyler Cloherty. “You're seeing lower producers getting bumped out as middle-market clients increasingly choose direct consumer providers like Fidelity or Schwab.”
One effect is increased competition among advisers for more affluent clients, Mr. Cloherty said.
A 2011 Cerulli survey showed that 22% of advisers were below 40 and just 5% were younger than 30. The average age of advisers was 49.6, up one year from 2010.
The average for wirehouse advisers was 50.6.
Advisers from independent broker-dealers saw the greatest decline in their ranks last year, as individuals at poor-performing businesses decided it was time to retire or turn to another profession, according Mr. Cloherty.
“Advisers who had moved from a wirehouse in the past few years and landed at an independent were flushed out of the system if they didn't have more than about $8 million in assets under management,” he said.
About 79,802 advisers hailed from indie broker-dealers at the end of last year, a 14% drop from 2010, when there were 92,727, according to the Cerulli data.
POCKETS OF GROWTH
The number of wirehouse advisers grew by 1% last year to 51,450.
The firms have boosted their head counts by ramping up new hires and training programs, Mr. Cloherty said.
There were as many as 64,058 advisers at wirehouses in 2005.
Registered investment advisers continue to add to their ranks as they have every year since 2004, with the number of RIAs increasing 3% last year to 28,714.
There were 20,851 RIAs in 2004.
“Advisers are finding it's more profitable and less restrictive to be an RIA,” Mr. Cloherty said. “It's less onerous from a regulatory perspective, and it's more client-focused.”
The difference in profit margin can be sizable, as RIAs keep 100% of revenue, less their overhead, while wirehouse advisers typically keep 38% to 45% of revenue, according to recruiters.
For small independents without name recognition, though, it is difficult to recruit advisers who manage significant assets, Mr. Diamond said.
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Without those assets to help build the business, small firms end up with not-very-profitable books of business that are sold to another adviser when the owner exits.
The result is that the client assets are being managed, but the industry loses an adviser, Mr. Cloherty said.
In fact, client assets held by advisers overall have remained at about $11.6 trillion since 2008, even though there were about 20,000 more advisers at that time.
“Client investments are there and the market is doing well, but what we're seeing is, the pool of experienced and talented advisers isn't increasing in proportion to the way the market is growing,” Mr. Diamond said.
More than two dozen independent broker-dealers have left the business since March 2010, representing the loss of about 3,247 advisers from these firms, according to InvestmentNews data. Even the nation's large independent broker-dealers aren't immune from the pressures of the economic slowdown and market volatility.
LPL Financial LLC, the nation's largest independent, managing $353 billion in assets, reported that its net income fell 13.2% to $39.5 million in the most recent quarter, and its commissions per adviser declined 6.2%.
Investment activity and trades were down because investors were cautious in the quarter ended June 30, due to uncertain markets, said LPL chief executive Mark Casady.
At the same time, LPL is making gains with head count.
It reported adding 223 net new advisers in the most recent quarter, attracting these individuals from wirehouses and other independents, Mr. Casady said.
The Cerulli data also show that the number of independent advisers with a bank broker-dealer increased 3% last year to about 15,793.
Rick Schofield, a financial adviser for 28 years, recently moved his office to the Wells Fargo Advisors Financial Network after Morgan Stanley Smith Barney LLC told him that it was closing his St. George, Utah, operation.
He said that the FiNet arrangement offers valuable services for The Schofield Group Investment Management LLC, which includes his two sons and manages about $128 million in assets,
“It offers us an opportunity to do some cross-banking type of investing and other opportunities not available to us with our other firm,” Mr. Schofield said.
Bruce Kelly contributed to this story.
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