Financial Adviser Turnover Steadies After Post-Pandemic Churn

Financial adviser turnover steadied in 2023 after a pandemic-related rebound and tight labor market led to above-average movement in 2021 and 2022, according to a recent report from ISS Market Intelligence.

The number of registered adviser representatives who changed firms fell to 35,532 by year-end 2023, down from 40,311 in 2022 and 38,909 in 2023, according to ISS MI’s “Rep Movement Report 2024,” which was released Wednesday. ISS MI, like PLANADVISER, is owned by ISS STOXX.

Those rebound years came after turnover plummeted to 29,329 moves in 2020, when some advisers stayed put during the height of the pandemic.

“After slumping in 2020, turnover in the advisor labor force rebounded in 2021 and 2022,” wrote Liam Stewart, the report’s author and a senior research associate. “As the dust settles, however, advisor turnover in 2023 appears to be returning to its long-term trend.”

The 2023 turnover matches closely that of 2019, when 35,618 advisers moved; meanwhile, the size of the adviser workforce resumed what had been a steady five-year decline before the pandemic hit.

The connection between registered advisers and 401(k) planning both for individuals and for small business clients has been a focus for the financial industry in recent years. But an aging population of advisers—both in financial advisement and qualified retirement plan advisement—is a shared challenge in business continuity and meeting client demand.

Going Indie

Another long-term trend among advisers also seems to have returned in 2023: More advisers are going independent by joining either registered investment advisers or regional broker/dealers, according to the report.

“Between 2020 and 2023, more than 15,000 reps left wirehouses for other channels, with the largest portion headed to independent firms or regional BDs,” Stewart wrote. “Meanwhile, independent channels and retail investment advisors (IAs) have witnessed a substantial influx of reps, with the former siphoning a substantial number of advisors from insurers and the latter from institutional advisories.”

Wirehouses, traditionally a starting job for many advisers, have seen a “mass exodus in the post-pandemic era,” according to Stewart’s findings, evidenced by a decline in advisers with fewer than five years’ experience. Advisers with six to 10 years of experience are more likely to remain.

“While the pandemic created some short-term changes to the composition of the licensed rep demography, the long-term trends facing the industry have largely returned,” Stewart wrote. “Licensed reps have continued to decrease in numbers, growing older and more independent, with significant consolidation happening within the industry.”

Shifting Sands

When considering the number of advisers by tenure, ISS MI data show growth in the number of advisers with at least 21 years of experience, whereas the total with 11 through 20 years of experience has “declined steadily over the last decade, a trend accelerated in the two years following the pandemic,” according to the report.

This trend “represents a missing 65,000 mid-career workers—and a potential looming crisis for older reps seeking to hand their books off as they look toward retirement,” Stewart wrote.

Based on those factors, ISS MI concluded that advisement will likely need to lean more on technology and creative succession planning.

“In the future, the industry will need to adapt to a shrinking workforce, both through continued consolidation and adoption of fintech solutions,” Stewart wrote. “Creating a continuity plan will be a key focus for many firms, as more tenured advisors continue to age, while less established, albeit still experienced, advisors in the middle of their career are few and far between.”

Meanwhile, Stewart notes via email, the turnover will likely start to flatline as fewer people will mean less movement. In the longer-term, however, he says that the trend may reverse as younger advisers “are increasingly cutting their teeth at discounters, and they may be on the outlook for more established firms to develop their careers further.”