Adviser Headcount Down for Fifth Consecutive Year

Cerulli finds the last year brought a 1.9% decline in the total financial adviser headcount. Kenton Shirk, associate director at Cerulli, says the latest annual decline means the total advisory industry headcount has fallen 12% from a high of over 325,000 advisers in 2008.

Shirk notes the registered investment adviser (RIA) and dually registered channels are the only advisory segments that have increased headcount over this time period. The findings are from Cerulli’s new report, “Advisor Metrics 2014: Optimizing Distribution Channel Resources.” Among other predictions, the report suggests headcount growth in the RIA and dually registered channels will continue over the next five years as advisers seek better profitability and more control over client service and practice management.

Causes of the headcount decline are numerous, according to Cerulli. Terminations, retirements and those exiting the industry by choice have all taken their toll. With a shrinking pool of talent and more rapid adviser retirements due to an older-than-average industry population, retention of quality advisers will be at a premium and the costs of securing outside talent could inflate substantially in the years ahead.

Cerulli says the average age of financial advisers is 50.9. This includes 43% of percent of advisers who are over the age of 55 and nearly one-third falling into the 55 to 64 category, clearly putting the onus on firms to invest in younger advisers. The growing average age of advisers is affecting different advisory channels, the report shows, but broker/dealers especially are struggling to recruit new young advisers to offset those leaving for retirement.

Cerulli suggests firm owners should encourage adviser teams to bring in junior advisers and train them in a specific area of expertise in order to increase the success rate of these new recruits. To guard against asset attrition, aging advisory firms need to provide support and resources to help advisers tackle succession planning, and development of internal succession candidates should be a priority for firm owners (see “Building a Succession Plan”).

Although adviser headcount at wirehouses has declined 2.8% annually over the past five years, these firms “operate at the pinnacle of adviser productivity and remain the premier distribution partner for asset managers,” Cerulli finds. But the success for wirehouse advisers shows signs of slowing. As Shirk notes, realizing their importance to distributors, wirehouses in general have aggressively renegotiated revenue-sharing agreements in recent years, leading asset managers to undergo more intensive analysis of these partnerships and explore alternative distribution opportunities across advisory channels.

Overall, Cerulli projects the market share in the RIA and dually registered channels to increase from a combined 20% of total assets in 2013 to 28% in 2018.

As a strategy to retain and attract advisers interested in independence, a growing number of broker/dealers (B/Ds) have introduced new platforms to serve RIAs and dually registered advisers, regardless of regulatory structure. As Cerulli explains, this multi-channel approach allows B/Ds to maximize return on fixed costs by spreading expenses across a wider number of advisers.

Cerulli finds many advisers are seeking integrated platforms offered by multi-channel B/Ds. These advisers are even willing to give up some flexibility and cost efficiency so they can instead focus on their core responsibilities of nurturing client relationships, managing investments, financial planning, and managing the business, the report explains.

Breaking down the current industry distribution, approximately one-third (36%) of practices with more than $500 million in assets are RIAs or dually registered advisers. Nearly another third (32%) of the total advisory workforce operates through wirehouses.

Regardless of their practice model, Cerulli’s finds today’s advisers are driven by the ability of comprehensive advice to increase the strength of client relationships. For this reason, advisers expect to offer comprehensive written financial plans to nearly half their clients by 2017, with only 13% expecting to receive no financial planning services. Advisers willing to embrace the nuances of retirement income options should make sure they clearly position their value proposition in their marketing communications in order to address retirees’ foremost concerns, Cerulli adds.

On the client service side, an expanding investment universe and increased market complexity have magnified the importance of home-office research, Cerulli says. This has allows B/D-supplied service models to increase in popularity as a starting point in advisers’ portfolio construction process.

Cerulli also warns that, in the short term, not many advisers are shopping around their practices, and those who are appear to be overly optimistic regarding the prices they may command, requiring buyers to strategically position themselves and their practices to attract sellers.

More information on obtaining Cerulli research reports is available here.