Over a third of US advisors plan to retire within 10 years

Financial advisors have been retiring faster than they can be replaced, and that trend shows no sign of abating, according to a recent report from Cerulli Associates.

But that coincides with an overall shift among established advisors going from wirehouses to RIAs. And although it’s unlikely that there will be a one-to-one replacement of advisors in the years ahead, succession planning has never been easier.

Nonetheless, there will be a “critical need for the industry to attract and retain talent” as more than 109,000 U.S. financial advisors – representing 38 percent of industry head count and 42 percent of assets – will likely retire during the next 10 years, a report published Tuesday by Cerulli noted.

That's because the “rookie failure rate” is nearly twice as high, at 72 percent, the firm stated. Last year, the number of financial advisors in the country went up by about 2,700 compared with the start of 2022, according to the report.

“Older, established advisors continue to move toward the RIA channels as they retain more control over factors such as being able to sell their practice externally and establishing a transition plan,” Cerulli stated. “A new, younger advisor is more likely to enter the industry working for a broker-dealer due to the wide array of support resources provided from the time of hire which can bring down the average age despite the majority of assets being managed by ‘older’ advisors. Across all channels, advisors 55 and older manage 56.7 percent of all assets despite representing only 42 percent of advisors.”

During the first nine months of 2023, RIAs and independent broker-dealers notched up their head counts by 856 and 685, while wirehouses lost 612 on a net basis, recent InvestmentNews research data show. That reflects a trend in the making since 2008, as big firms like Merrill Lynch, Morgan Stanley, Wells Fargo Advisors, and UBS have gradually lost advisors to RIAs.

Although wirehouse advisors account for the biggest share of assets, the outflow of professionals from that channel will result in its proportion of industry head count going from 15.1 percent to 13.4 percent over five years, according to Cerulli. That would happen as the total number of advisors industrywide is projected to increase by about 1,500 by 2027, the firm stated.

“Obviously, the RIA space has gained momentum in our industry. But on the flip side of that, broker-dealers have pivoted. Most of the major firms now offer an RIA or advisory-only platform, where you don’t have to be licensed thru Finra,” said Jodie Papike, partner at advisor placement firm Cross-Search.

But a wider issue affecting both broker-dealers and RIAs is that not enough recent grads are getting into the business, said Mark Tibergien, a management consultant who was previously CEO of Pershing Advisor Solutions.

"It appears many people coming out of university with degrees in finance are preferring a different route such as VC, PE or investment banking. As a profession, the financial advisory business has not painted a good enough picture around career paths, individual progression and intellectual stimulation. Plus those other industries seem to pay more initially," Tibergien said in an email.

Further, "one challenge is that many employers have not gotten away from the so-called 'producer' mentality, wherein as soon as a person starts in this business, they need to start looking for clients. A better model is what happens in accounting or law or other professions where individuals work as part of a team or unit under the leadership of others. They master their craft, they move up the chairs, their reward and responsibility increases and eventually they become partners."

Money has gushed into the RIA world, with private-equity firms backing a lot of aggregation. Last year, there were 321 RIA deals announced, down nearly 6 percent from a record 340 in 2022, according to a report today from Echelon Partners.

Amid that, broker-dealers have sought to retain their big producers, and their assets, by acting as matchmakers for acquisitions and providing financing for them, Papike said.

“Even if the [industry] head count will go down, I think partially what will happen is advisors that want to grow through acquisitions will continue to get bigger,” she said.

But succession planning across the business is changing as “the training programs in the wirehouses are just not what they used to be, and that was the talent funnel for the industry,” she said.

Although talent will continue to come from wirehouses and go to the independent world, there will be more of a need at RIAs and independent broker-dealers to bring in junior employees and train them to take over business, Papike said.

Because of that, Cerulli recommends that “senior advisors ensure sufficient learning opportunities are provided to younger team members for experience in client-facing and asset-gathering roles,” the company stated in its report. “Granting rookies opportunities for development better positions a practice for a potential transition, as well as achieving process continuity and job satisfaction, which will lead to longer-tenured staff.”