Advisor headcount growth has stalled, according to a new report by wealth management research and consulting firm Cerulli Associates.
Over the decade ended in 2022, total advisor headcount grew only 0.3 percent. In 2022, the number of new advisors increased by only 2,706.
According to the report, 109,093 advisors plan to retire over the next decade. These advisors make up 37.5 percent of the total industry headcount and account for 41.5 percent of total assets.
Despite the industry stagnation, RIA was the one channel to exhibit high growth. According to the report, RIA headcount increased 10.6 percent year-over-year— the highest among all channels.
This is due to economics and autonomy, said Cerulli.
“Operating as an RIA provides advisors with a higher payout, enhanced investment flexibility, and more control over their practices,” Cerulli associate director Andrew Blake said in an email.
However, even RIAs struggle with retaining talent.
One thing firms can do to increase headcount is provide adequate learning opportunities for new or young advisors, said Cerulli.
Meredith Schwarz, vice president of mergers and acquisitions at Wealth Enhancement Group, an RIA with $71 billion in AUM and one of the most active RIA acquirers, told RIA Intel in a recent interview that the company actively looks for RIAs that have invested in the second generation of advisors.
“M&A is all about acquiring talent,” said Schwarz. “If we bought just a whole bunch of businesses that had retiring advisors, what’s going to happen in two years when all those advisors retire?”
However, firms that are successful at investing in talent are few and far between, said Schwarz.
That belief is reflected in the report.
Wealth management has a high attrition rate of new advisors. According to the report, about 72 percent of rookie advisors — defined as having three or fewer years in an advisory role — failed or left the industry.
Part of the reason could be that rookies don’t have a clear path forward in their company. Only 18 percent of advisors who are planning to retire in the next 10 years said they wanted rookie advisors to succeed them. In addition, 26 percent did not have a formal succession plan, and 14 percent planned for an external sale. Only 26 percent had identified an existing advisor within the practice as their successor.
However, there are concrete steps that firms can take to improve their advisory pipeline, according to Cerulli.
“Rookies rely upon strong mentorship from their peers, exposure to successful financial advisors, and increased training on various financial planning topics,” said Blake in a statement. “It is crucial for RIAs and B/Ds to 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.”
According to Cerulli, about 40 percent of rookie advisors worked in the financial services industry before becoming an advisor.
Professional networking and referrals are critical not only for firms looking to build up a pool of potential advisors but also for financial professionals looking to pivot to financial advice, said Cerulli. According to the report, 32 percent of rookie advisors were referred by a personal contact.