Adviser Industry Faces Significant Shortage, per McKinsey Report

The U.S. wealth management industry faces a “looming” adviser shortage, which could reach as high as 110,000 by 2034, according to a report from consultancy McKinsey & Co., which recommends firms cast a wider net when recruiting.

The size of the adviser workforce has increased “at a meager” 0.3% per year over the last decade, and that is expected to worsen, according to the report, which forecasted that the number of advisers will decline at a rate of 0.2% per year.

“Retirements outpace recruitment, as advisers are on average 10 years older than members of similar professions,” the report stated. “Solving the adviser capacity challenge will require a deep rethinking of the adviser operating model.”

According to McKinsey, wealth management firms will need to boost productivity by 10% to 20% and attract talent at a rate of 30,000 to 80,000 net new advisers over the next 10 years. This would be a huge jump from the net new adviser rate of 8,000 over the past decade.

“Two segments in particular represent the best options for attracting new advisers,” the report stated. “Entry-level talent and career switchers. In both cases, improving the value proposition of a career as an adviser will be critical to success.”

The report stated that new, inexperienced hires are “an important and increasingly diverse talent pool,” adding that more than 3 million undergraduate and 1 million graduate students are expected to enter the U.S. workforce each year.

McKinsey recommended firms consider hiring more recent graduates and sending recruiters to U.S. college campuses in search of new talent, saying only few firms currently do so.

“Partially as a result, financial adviser does not seem to be a top-of-mind profession for most students,” the report stated.

Wealth management firms should also not rule out hiring junior advisers leaving a major adviser development program, according to the report, arguing that many of those who “dropped out” could have done so due to not being a fit at a particular firm.

The report also advised firms to increase their recruitment of women, noting that they are significantly underrepresented in the industry.

“Firms that recognize this and take steps to attract more female advisers will have a competitive advantage,” according to the report, which noted that women account for nearly 60% of the graduate pool but only 15% of advisers. “Wealth management companies can do much more to tap the skills and experience of women looking to change career paths.”

Another segment of the workforce at which firms should look are “career switchers,” who include relevant or “adjacent” financial services professionals with client service experience, such as trust and estate professionals and accountants, according to the report. Potential advisers could also include candidates in industries that involve sales skills, such as software sales, and those with relationship skills, such as white-glove client service reps, executive assistants and veterans.

“The industry is facing a monumental challenge,” the report stated. “Wealth managers will need to focus on attracting new talent to the industry, helping them be more productive and successful, and further increasing productivity of the mid-career and established adviser population.”