Recruiting and Hiring Practices Gain New Importance Among Advisors

June 16, 2022 — Boston

As an increasing number of advisors approach retirement, they are looking to the next generation to assume practice responsibilities, but there aren’t enough replacement advisors to fill the gaps

A material number of advisors are retiring each year, creating an ongoing point of disruption for wealth management firms. As firms look to incubate and grow new talent, broker/dealers (B/Ds) and independent firms will need to enhance recruiting pipelines and provide substantive support to trainees, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Within the next 10 years, 37% of financial advisors who collectively control $10.4 trillion, or 40% of total industry assets, expect to retire. Among these retiring advisors, 27% plan to transition their books of business to another advisor in their practice, while 25% remain unsure of their succession plan. This wave of pending retirements makes it imperative for firms to attract and retain the next generation of advisors who can carry on these existing books of business.

As firms holistically evaluate recruiting and hiring practices, it is critical to focus on diversity. A succeeding generation with more women and Black, Indigenous, and People of Color (BIPOC) advisors will allow firms to better connect with a broad base of investors and reach historically underserved communities. Recruiting, however, is just the first step. Many firms fail to retain these cohorts due to insufficient mentoring, work-life imbalance, limited access to prospecting networks, and implicit bias. To combat attrition, one approach that Cerulli has observed firms take is lengthening the traditional three-year rookie advisor development program. Surveyed practice management professionals believe that, on average, 5.4 years is the ideal training timeframe before an established advisor transitions their practice to a rookie. “We believe that extending this early learning period for advisors can lead to greater proficiency, confidence, and lower attrition among recruits,” states Marina Shtyrkov, associate director.

Age is also an important consideration to address when building new advisor training programs. The average age of rookies joining advisory firms is 37—an age range that often brings more significant financial and personal obligations. “The potential financial instability of building a practice is a considerable challenge contributing to the industry’s high failure rates given the average age of rookies,” adds Shtyrkov. Cerulli suggests that wealth management firms remain mindful of these challenges as they enhance their new advisor programs and bring diverse candidates on board. “Career changers can contribute valuable networks, life experiences, and transferable skills from their prior professions, but they are not as well positioned to handle the uncertainty of beginning an advisory career,” says Shtyrkov. “Optimizing new advisor development programs for a diverse cohort of trainees ultimately helps firms deepen relationships with future inheritors and younger investors, as well as retain assets as clients age and wealth transfers to the next generation.”

Many rookies are drawn to the autonomy and freedom of a career in financial advice; however, compensation models are often based on client acquisition—two-thirds (67%) of rookie advisors are responsible for building their own client base from scratch. Firms seeking to address the instability of building a practice early on in the career of an advisor should set up a team structure that promotes knowledge transfer. “Firms must strike a balance between harnessing this entrepreneurial energy and setting rookies up for success,” says Shtyrkov. “Often, this is best accomplished by allowing new advisors to start in a service or support role, in which they help serve a senior advisor’s existing book of business or work directly with a segment of the practice’s less-ideal clients.” This structure creates natural learning opportunities for new advisors by allowing them to practice key skills, shadow other advisors, and obtain hands-on experience in a lower-pressure environment.

Note to editors

These findings and more are from The Cerulli Edge—U.S. Asset and Wealth Management Edition, May 2022 Issue.

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