Demographic time bomb set to hit financial advice industry

Demographic time bomb set to hit financial advice industry
The country’s advisors are retiring, along with their baby boomer cohorts, exactly when those clients need advisors' services the most.
FEB 20, 2024

Nearly 40 percent of financial advisors are expected to retire in the next decade, and the replacement rate is not keeping up.

Based on those simple facts, it’s plain to see the wealth management industry is on the cusp of a demographic nightmare.

Compounding the problem, says Sandy Herzlich, vice president of retirement strategy at The American College of Financial Services, is the fact that the country’s advisors are retiring, along with their baby boomer cohorts, exactly when those clients need their services the most. According to Cerulli, nearly 60 percent of RIA assets are managed by advisors aged 55 and above.

“The baby boomers need more financial advisors and we're providing less,” Herzlich said. “The American College of Financial Services is working hard to solve the problem by introducing more people into the industry, especially minorities."

The high attrition rate among new financial advisors in their first two to three years is not helping the situation. Herzlich attributes that to the fact that the financial advisory business structure has traditionally been a matter of “eat what you kill,” making it an extremely tough business to get started in.

He does offer some solutions to address the problem, including having companies provide a better glide path for new employees to help them stick around through the tough times.

“As a college, we can help people gain the education they need to differentiate themselves and jump-start their careers,” said Herzlich. “We're kicking around an idea right now of working with undergraduate colleges to put in an investment training program and a financial advice training program where kids can come out of college with a designation that doesn't require the tenure that the CFP or the CHFC does.”

Herzlich acknowledges that a big part of the retention problem is the heavy focus on sales – and therefore rejection – instead of financial planning at the start of a career.

“I don't think they leave after three years because they decide they don't like the business. It’s that they get to three years and they decide they're not making any money,” he said.

Matt Matrisian, senior vice president and head of client growth at AssetMark, says current advisors need to do more to attract younger advisors to the profession and set them up for success, and eventual succession.

To do this, he recommends that practices establish clearer communication about career paths so the next generation of advisors is aware of exactly what they need to do to reach the next level and is more incentivized to stick with the firm amid a rise in job-hopping across all industries.

“Practices can also bolster the recruitment pipeline by looking beyond new graduates and focusing on attracting individuals from nontraditional backgrounds,” Matrisian said. “For example, I recently spoke with a firm that had great success bringing on several new recruits who wanted to transition away from teaching.”

He adds that the next generation of advisors also needs to think about how they scale their client experience model to serve more clients than their predecessors, given that there are fewer advisors in the market.

“With more investors in the market expecting more services from their advisors, advisors may need to leverage other partners, like outsourcing and technology,” Matrisian said.

Here's why financial advisors should hire military spouses for their practices

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.