The industry has some retirement planning of its own to do: Advisors’ average age is just shy of 49 years old and 14% of advisors are over age 60. Combine that with advisors’ evolution from transactions to ongoing fee-based relationships, and broker-dealers have quite a problem on their hands, according to a new report by Cerulli Associates in Boston.
Aging advisors’ clients are more loyal due to advisory relationships, which is good. But it’s not so great for newcomers hoping to build a business because potential clients don’t jump ship as readily as they used to. Add to that outdated hiring and training practices by broker-dealers—“new hires are expected to start up their practices with little more than a cubicle and a phone book,” says the Cerulli report—and there isn’t much to recommend the industry to a newcomer.
That’s not to say there’s no demand, of course. Around 10% of advisors change firms each year, and firms are losing another 5% or so to advisors retiring. Cerulli estimates that a firm the size of Wells Fargo, for example, must recruit 2,000 advisors per year just to keep pace with attrition. But the total universe of advisors keeps slowly shrinking over time, down about 1.4% from 2004 to 2008, from 313,705 to 309,693.
However, rather than replenish the advisor pool by training newcomers, the industry remains focused on hiring from a dwindling number of high producers. (Not that this is bad news for top producers—signing bonuses are as high as 300% of trailing 12-month production for them).
The solution, says Jeff Strange, associate director of Cerulli, could allow broker-dealers to have their cake and eat it too. Rather than bring in as many recent graduates as possible, teach them to cold call and then see who survives, firms should be more discriminating off the bat, assigning new recruits to teams of more seasoned advisors who can then show them the ropes. “Training programs are expensive,” Strange notes. “But in a team, senior members increase their production because new recruits can take over some financial planning and due diligence tasks while they learn about the nuts and bolts.” Broker-dealers will need to continue to recruit high producers to lead these teams, a structure that lends itself to succession planning, which in turn provides a path for new advisors to build profitable practices, Strange says.