As a significant portion of today’s advisors are set to grey out of the industry, a new report by Cerulli underscores the pressing need for wealth firms to help their rookie advisors succeed.
According to the newly released US Advisor edition of the Cerulli Edge, roughly two-fifths (38 percent) of industry advisors are expected to retire within the next decade, creating added pressure to develop rookie advisors who can take over existing client relationships smoothly.
But the industry faces a substantial hurdle: the high attrition rates among new entrants. As Cerulli sees it, advisor boot camp isn’t exactly a walk in the park, with more than 75 percent of trainees unable to see their initiation to the end.
"Given the negative impact that a decline in advisor headcount can have on organic firm growth, recruiting rookie talent and enabling them to succeed should be top of mind for wealth management executives, if it isn’t already," the report states.
For new advisors, one of the toughest challenges is building up an initial base of clients. Half of rookie advisors – who are 37 years old on average, based on Cerulli’s methodology – break into the industry without any clients whatsoever.
Meanwhile, established advisors, many with decades of industry experience behind them, have built up fast-running flywheels of organic growth through a system of referrals, with 56 percent coming from friends, family, and existing clients, and another 15 percent from centers of influence such as CPAs and attorneys.
Not surprisingly, client acquisition stands out as the top obstacle for new advisors, with 44 percent saying it’s a major challenge. And while old-school advisors were able to get started by cold calling, that door has been largely slammed shut to today’s young guns thanks to evolving technology and regulatory environments.
One possible solution, Cerulli suggests, could lie in wealth management firms’ increasing focus on teaming. Under that model, rookies can be placed in support roles within established teams, allowing them to learn from senior advisors while gradually taking on client responsibilities.
An estimated 22 percent of rookie advisors serve as lead advisors for some client relationships, Cerulli said, while 17 percent are tasked with managing their own small to mid-sized client book, often seeded by the firm.
"Hiring advisors into a supporting role provides them with the opportunity to be mentored while enabling them to provide sufficient value to a practice to justify their cost," the report noted.
Done right, seeding new advisors with a small client book offers a potential triple win. Firms can mitigate the initial costs of training up new hires; rookies get a practical way to develop essential skills and earn referrals; and senior advisors can focus their time and attention on higher-value clients as they leave their mentees to do the grunt work.
"Firms that challenge themselves to think outside of the box and rally the full spectrum of resources across their organizations to support their rookie advisors will be in the best position to help them succeed," Cerulli said.
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