It’s no secret that the wealth management industry is facing a talent shortage. The number of new financial advisors joining the profession barely offsets the number of retirements and trainee failures. Research firm Cerulli Associates estimates that the number of U.S. financial advisors grew by a net of only 2,579 in 2022. Cerulli has yet to release total headcount for U.S. advisors at the end of 2022, but the figure stood at 288,555 at year-end 2021.
The short tenures of many newcomers to the field are a significant part of the problem. Last year, 18,207 new trainees entered the business, but 13,169 trainees failed, resulting in what Cerulli describes as a 72% “rookie advisor failure rate.” Meanwhile, an estimated 2,459 advisors retired in 2022.
These numbers highlight a long-standing concern among wealth managers, firms won’t be able to recruit and train enough new advisors to replace a graying workforce. Cerulli estimates that nearly 37% of the industry total, or 106,264 advisors, plan to retire during the next decade.
To bridge the gap and find new talent, broker-dealers and registered investment advisors must seek new avenues for connecting with potential candidates and spreading awareness about the profession. According to Stephen Caruso, a Cerulli research analyst, “The old-fashioned method of word-of-mouth referrals continues to drive the recruiting of new advisors, with nearly two-thirds (64%) of rookies brought in this way. This informal recruiting process makes it more challenging for firms to reach a broad cross-section of applicants.”
Expanding the Pool of Trainees in Financial Planning Industry
The financial planning industry is struggling with a talent shortage, and firms are taking several measures to bring in more advisors. For instance, RBC Wealth Management is recruiting on college campuses and utilizing “student ambassadors” to spread awareness about career opportunities.
Similarly, the CFP Board is conducting its own student outreach and emphasizing that financial planning has shifted towards goal-based strategies rather than making stock picks.
According to Cerulli, once firms have recruited potential candidates, they should provide them with structured training programs. The goal should be to move rookies into client-facing roles, enabling them to introduce new clients gradually.
Although rookies may be managing small accounts at first, which can help them gain client-facing experience, it can also hold them back from developing their own clients. Therefore, firms need to combine technical planning expertise with conversational skills while designing development programs for rookies.
As the demand for financial planning services continues to grow, firms will need more advisors with the right skillset to meet the client’s needs.