Nearly 37% of advisors are expected to retire over the next 10 years, according to new research from Cerulli Associates, putting nearly 39% of assets under management in play.
The wirehouse (40.7%), independent broker/dealer (IBD) (40.7%), and national and regional broker/dealer (B/D) (39.7%) channels have the largest portion of advisors who are planning to retire and transition their businesses, Cerulli notes in its “U.S. Broker/Dealer Marketplace 2019: Value Levers—Technology, Planning and Practice Management” report.
In comparison, the hybrid registered investment advisor (RIA) channels (31.1%) and bank B/Ds (24.7%) have lower rates of advisors retiring within this period. Partially as a result of these forthcoming retirements, Cerulli projects that total advisor headcount will decrease 1.4% between year-end 2018 and 2023.
Like the attention being paid to the generational wealth transfer that is set to see $68 trillion change hands over the next 25 years, Cerulli notes that the industry is attempting to adapt to a “changing of the guard” among advisors. Across all channels, 28% of advisors who plan to retire in the next decade expect an advisor in their practice to succeed them, while 22% have no plan.
“While some progress is being made, the industry is struggling to recruit and retain advisor talent that is adequately prepared to inherit the businesses,” explains Michael Rose, associate director of wealth management at Cerulli. To overcome this challenge, firms are boosting recruiting efforts to bring new advisors into the industry and revamping training efforts to improve rookie retention rates, the report observes.
B/Ds are also working to create attractive succession options for advisors approaching retirement, Cerulli notes. “It will be increasingly important that firms operate successful training programs in order to attract and train qualified advisors, integrate these younger advisors within teams for whom they can serve as a pipeline of potential successor candidates and operate effective business succession programs for retiring advisors,” Rose emphasizes.
For example, the report notes that earlier in 2019 Wells Fargo Advisors created the Wells Fargo Advisors Summit program, granting participating advisors an additional 25% valuation on trailing 12-month revenue when negotiating succession opportunities within the firm. Additionally, LPL recently announced a program that will offer a portfolio of succession solutions to help advisors implement a plan for both planned and unplanned exits from their businesses.
Channel Interest
Regarding which channels are of highest interest to advisors, Cerulli found that, across all channels, independent RIAs enjoy the highest rate of preference among its own advisors (96%), followed by the independent broker/dealer (65%) and hybrid RIA channels (64%). The bank B/D channel is least preferred by its own advisors, who report greatest affinity for the bank trust or private bank channel as alternatives.
Looking at what motivates advisors to leave their current firms, Cerulli found that 71% of advisors overall who changed firms over the last three years cited a desire for greater independence as the top overall factor. But when looking at the “top major factors,” dissatisfaction with senior management was the top factor (51%), followed closely by a desire for independence (50%) and the ability to build financial value in an independent business (44%).
Cerulli suggests that the data provides some important insights into the general trend it has observed about advisors, who have been leaving traditional B/D channels at a “low but consistent rate” to join RIA channels, where they will likely experience greater independence and the opportunity for business ownership.
Looking at the reasons for changing firms, Cerulli found that advisors who left a network firm – a wirehouse or national and regional B/D – to join another network firm overwhelmingly cite “culture and unhappiness with senior management” as major factors. In contrast, Cerulli notes that advisors who left a network firm to join an IBD, hybrid RIA or independent RIA cite “independence and inflexible compliance” as top factors.
