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Will the Financial Advising Industry Have Enough New Advisors to Fill the Gap?

Why the industry is concerned about the upcoming wave of advisor retirements.

Collage of mason jar filled with dollar bills and a calculator along with outlined illustrations of a dollar sign, a chart and a percentage sign

On this episode of The Long View, Andrew Blake, associate director of wealth management for Cerulli Associates, discusses the latest research from Cerulli’s US advisor metrics report, including the upcoming transition of assets with advisor retirements, the growing number of registered investment advisors, and the range of services that financial advisors provide.

Here are a few excerpts from Blake’s conversation with Morningstar’s Christine Benz and Amy Arnott.

Will the Financial Advising Industry Have Enough New Advisors to Fill the Gap?

Christine Benz: Following up on your earlier comment about retirements and why the number of advisors has flatlined. Over the next decade, about 110,000 advisors plan to retire, and those people make up about 38% of industry headcount and 42% of total assets. That seems like a huge number. Does the industry have enough younger advisors to fill the gap?

Andrew Blake: Well, I want to reiterate that it is a huge number. Over 41% of assets set to retire in the next 10 years means that there is going to be money in transition. It’s a concern in the industry. The industry is really struggling with a high burnout rate for new advisors, or trainees. Many advisors who are eyeing retirement are willing to be the mentors that they aspire to be or maybe imagine themselves as when they’re going to transition their practice. I think a little bit of that is human nature—it’s best intentions to as you move on to the next stage, spend extra time training the next person to fill the role, giving them increasingly meaningful tasks that are going to develop them and allow them to interact with clients. But also on your way toward retirement, it’s hard to train people well, and it’s hard to be a good mentor consistently. So, I think sometimes the aspirations don’t line up with how it plays out. Advisors who are getting especially close to retirement naturally are going to be taking more vacation time and delegating more tasks. Adding mentoring as an additional task, which is a time-consuming role, doesn’t happen to the extent advisors like to believe it will.

The other important thing to consider is that the average rookie advisor age is 37 years old. For most advisors, it’s not a first career. I think broker/dealers need to do a better job of appealing to recent college graduates, for example, making their training, ramp-up process, and getting licensed more appealing by also setting them up with advisors who are going to be those mentors and be held in check through some component or some system to actually help develop those advisors and give them substantial tasks to work on.

A Flex-Time Schedule Can Accommodate Advisor Retirement Transitions

Amy Arnott: With the older advisors who are heading into retirement, it seems like maybe allowing them to downshift to a part-time or flextime schedule would help smooth this transition so that instead of retiring at 65 and then disappearing from the practice at that point, they might have a much longer transition period of five or 10 years of working part-time. Are enough advisory firms making that type of schedule possible, in your opinion?

Blake: I think they are. The advisors themselves are often the ones to hold up succession planning. The emotional toll of transitioning clients and finding a successor or a proper buyer are the two biggest challenges advisors face in regard to succession planning. So, it’s really putting in the time to think five, 10 years out of the plan that’s going to be set in motion. I would say that a lot of advisors who are near retirement are probably operating with a pretty flexible schedule. And that’s also the thing that holds them up on an efficient transition is they’re not really as involved in the day-to-day operations and transition and training.

Will College CFP Programs Help With the Upcoming Wave of Advisor Retirements?

Benz: I wanted to ask about some of the college programs that have come online just over the past decade where universities are having a financial advice program. And a lot of these students are emerging with their certified financial planner designation or at least have gone through the coursework. Do you see that as a way the industry is going to address that retirements are coming hot and heavy over the next decade?

Blake: I personally love that idea and the idea of beginning the CFP process while you’re in college. Broker/dealers should absolutely be working to expand their programs and be sponsors where they can and be visible on campus with financial education events, making the industry seem more exciting. And that sounds a little harsh at times, but the financial-services industry as a whole has been a little slow to modernize and develop in a variety of areas. And I think for new college grads, they want to know that the industry they’re joining is not on the way out, and all they hear about is fee compression and consolidation. They need to understand that the business is just changing, and financial planning has become more important. I think broker/dealers need to do a better job of staying integrated in the CFP program. I think the CFP board has a lot of goals of making that even more visible. So, that all is great stuff to me, and I think will really help address some of these issues we’ve talked about.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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