The math doesn’t figure.
Cerulli reported Tuesday that the number of advisors grew by just 2,706 in 2022, barely offsetting trainee failures and retirements.
Yet over the next decade, almost 110,000 advisors plan to retire, comprising 37.5% of industry headcount and 41.5% of total assets. The roughly 2,700 new advisors are far from the required replacement rate, emphasizing the critical need for the industry to attract and retain talent.
The issue doesn’t appear to be recruiting but rather the high rookie failure rate, which hovers around 72%.
Cerulli said that as the industry grapples with such a low success rate for new advisors entering the industry, firms must grow their talent pipeline and better communicate a financial advisor’s role and training timeline.
“Only a small portion of rookies (13%) join the financial advice industry as the first job in their career; however, 40% of rookie advisors work in the financial services industry prior to becoming an advisor,” the Boston-based research and consulting firm noted. “To this end, professional networking and referrals could be as critical for firms building a pool of potential advisor candidates as it is for those looking to become financial advisors—nearly one-third (32%) of rookie advisors were referred by a personal contact.”
Ramp-up time and responsibilities are essential to growth, development, and retention. Rookie advisors generally start in roles focused on increasing practice efficiency and then shift into producers by being provided a natural progression in their roles and responsibilities.
"I've been banging this drum for 10 years," Ryan Shanks, Co-Founder and CEO of financial advisor recruiting technology and services company FA Match, said. "Look at the average advisor age and lack of a succession plan, and factor in the fact that training programs are not what they once were. On the other side, the younger generation doesn't want to build and grow the business, they just want to come in and take it over. That 72% rookie washout rate could be drastically lower if they were just aligning the right people with the right organizations."
For its part, Cerulli recommended that senior advisors with experience in client-facing and asset-gathering roles provide sufficient learning opportunities to younger team members. Granting rookies opportunities for development, better positions, and practice for a potential transition, as well as achieving process continuity and job satisfaction, will lead to longer-tenured staff.
“A strong partnership between a rookie advisor and their firm is often a key reason behind successful development,” Andrew Blake, Cerulli Associate Director, said in a statement. “Rookies rely upon strong peer mentorship, exposure to successful financial advisors, and increased training on various financial planning topics. RIAs and B/Ds must 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 advisor.”
