Financial Adviser Shortage Looms, Cerulli Reports

The number of new financial advisers barely offsets rookie washouts, underlining the need for the industry to attract and retain talent, according to The Cerulli Report—U.S. Advisor Metrics 2023, released Tuesday. As a solution, the consultancy encouraged advisory firms to develop their talent pipeline, as well as to improve communication and training.

Cerulli found adviser headcount remained largely unchanged in 2023, with only a 2,706 increase in 2022. Previous Cerulli research revealed last year brought a 1.9% decline in the total financial adviser headcount. However, the upcoming decade will see the planned retirement of 109,093 advisers who make up 37.5% of industry headcount and 41.5% of total assets, the firm reported.

While 18% of respondents hope for rookie advisers to succeed them, the report estimates a five-year rookie exit rate of nearly 72%. To combat that massive attrition rate, Cerulli’s report states that training programs, professional development and mentoring are imperative, as they will allow rookie advisers to transition into productive roles, rather than being confined to support positions.

“A strong partnership between a rookie adviser and their firm is often a key reason behind successful development,” Andrew Blake, an associate director at Cerulli, said in a statement. “Rookies rely upon strong mentorship from their peers, exposure to successful financial advisers, and increased training on various financial planning topics. It is crucial for [registered investment advisers] and [broker/dealer]s to continue to develop programs and training methods to aid rookies in financial planning and other skills to adequately prepare them as they embark upon a new career as an adviser.”

Good Humans Needed

Cerulli’s findings emphasized the importance of not overlooking the human aspects in succession planning for advisers. The emotional challenges of transferring clients to a new adviser are the most common challenge for practitioners (93%), but there are ways of evaluating a new adviser.

According to the data, the key criteria for evaluating potential successors are:

• Prioritizing clients’ interests (93%);
• Establishing chemistry with clients (87%);
• Considering personality (80%); and
• Assessing regulatory/compliance records and financial planning philosophy (70%).

It is also important for advisories to realize that most people will come to the advisement career from elsewhere in finance. Only a small portion of rookies (13%) join the financial advice industry as the first job in their career. Many rookie advisers (40%) work in the financial services industry prior to becoming an adviser.

To this end, Cerulli says professional networking and referrals could be as critical for firms building a pool of potential adviser candidates as it is for those looking to become financial advisers. Nearly one-third (32%) of rookie advisers were referred by a personal contact.

More Sellers

The results of this shortage may only increase already rampant mergers and acquisitions in the financial advisement space. Given the lack of new advisers, Cerulli anticipates many will choose to pursue an external sale for the future of their firm.

Among advisers with less than a 10-year horizon, 14% plan for an external sale, which is most common among independent practices. Another 26.2% have identified an adviser within their practice as their successor. Meanwhile, 26% have not developed a formal plan. Of this group, Cerulli noted that many will likely result in additional external sales.

“Senior advisers [should] ensure sufficient learning opportunities are provided to younger team members for experience in client-facing and asset-gathering roles,” Cerulli recommended. “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.”

Each report is authored by a senior Cerulli analyst and incorporates qualitative and quantitative inputs based on Cerulli’s proprietary research process.