Firms lose $2 million every time an adviser departs: study

Even without client loss, adviser attrition can cost companies more than they realize in lost revenue

Aug 29, 2016 @ 11:57 am

By Liz Skinner

Every time a financial adviser defects, firms stand to lose about $2 million in revenue — and that amount does not include the professional taking clients or assets with them to their new employer.

An adviser hired as a replacement generates less total revenue at a firm than the original adviser would have produced in a 20-year span, according to a study by Kehrer Bielan Research & Consulting. The study, sponsored by the largest independent broker-dealer, LPL Financial, examined the impact of advisers leaving 36 banks and credit unions.

"While the replacement adviser closes the annual gap over time, the lost revenue is never recovered,” said Peter Bielan, co-author of the research report.

(More: Adviser's Consultant: Create work environment that makes greatest employees want to stay)

The study looked at typical production of exiting advisers who were with a firm for five, eight, 12 and 15 years, and compared what their revenue would have been over a 20-year career with what they generated to that point plus what a replacement adviser will add to it over the remaining period. The new adviser isn't necessarily new to the profession.

The revenue shortfall ranged from $1.9 million for an adviser who left after five years, to $2.4 million for an adviser who left after 15 years with the firm.

(More: Adviser's Consultant: Hiring the best employees requires teamwork)

The report puts hard numbers to something many financial advice firms already know: Turnover is expensive.

For most advisory firms, it makes good economic sense to try to retain good advisers, especially because most do take clients and assets away with them to their new firm, causing even greater losses.

“The analysis provides a strong case for spending money to keep the keepers,” said Tim Kehrer, a study co-author.

Arthur Osman, LPL Financial's executive vice president for Institution Services Business Consulting, said firms need to provide valuable support to advisers and their clients if they want to hang on to the best financial advisers.

“Comprehensive strategies to retain advisers are just as integral as those used to recruit new advisers,” Mr. Osman wrote in an email.


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