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Turmoil Ahead for Advisory Firms, Survey Says

A new report says that an increase in expected advisor retirements, the growing consumer preference for robo-advisor models and the more favorable fee structure of independent advisory shops are setting the stage for a major disruption in the market for financial advisory services.

According to the J.D. Power 2016 U.S. Financial Advisor Satisfaction Study, while financial advisors will still be a critical part of the future of the business, key industry trends — such as the availability of low-cost robo-advice, the rise of so called “validators” who want to make more of their own financial decisions even while supported by an advisor, and the new fiduciary rule — “set the stage for fewer and different kinds of advisors and an increasingly exclusive focus on the high net worth segment where FAs can add the most value.”

Retirement Ready?

The report notes that:


  • Nearly one-third (31%) of advisors are poised to retire in the next 10 years. Between 2014 and 2016, the number of advisors indicating they plan to retire in the next 1-2 years has risen from 2% to 3%.

  • The number of employee advisors indicating they will likely go independent in the next 1-2 years doubled from 6% in 2014 to 12% in 2016. Another 12% of advisors say they are likely to join or start an independent registered investment advisor (RIA) practice in the next 1-2 years, up from 7%.


The report also says that at the current expected rate of attrition due to retirement and firm switching, a firm with 10,000 financial advisors may have more than half a billion dollars (approximately $585 million) in annual revenue at risk during the next 1-2 years, “highlighting the critical need to retain top producers and to effectively manage succession planning to transition assets to newer advisors.”

Retention Trends

The J.D. Power Study measures satisfaction among both employee advisors (those who are employed by an investment services firm) and independent advisors (those who are affiliated with a broker-dealer but operate independently) based on seven key factors (in alphabetical order): client support, compensation, firm leadership, operational support, problem resolution, professional development support, and technology support.

Overall satisfaction averages 722 on a 1,000-point scale among employee advisors, up 21 points from 2015, while the satisfaction level was lower (755) among independents, down 18 points from last year.

Among employee advisors who are highly satisfied (overall satisfaction scores of 900 and above), only 1% say they “definitely will” or “probably will” leave their firm in the next 1-2 years, compared with 46% of dissatisfied employee advisors (scores of 600 and below) who say the same. The same trend holds true for independent advisors (2% and 45%, respectively).

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