The number of new advisors entering the industry is barely offsetting retirements and trainee failures as firms struggle with high wash-out rates. To help advisors succeed, firms across all channels must work to build a diverse talent pipeline and enhance rookie development programs, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Financial advisor headcount grew by just 2,579 advisors in 2022, after a rookie advisor failure rate of more than 72%. In response to high attrition, financial services firms must work on developing sustainable talent pipelines that capture a wider range of talent.

Currently, new advisor recruiting is driven largely by word-of-mouth referrals—nearly two-thirds (64%) of rookie advisors were recruited this way. This informal recruiting process makes it more challenging for firms to reach a broad cross-section of applicants.

“Rookie advisors come from all different backgrounds,” says Stephen Caruso, research analyst. “Just 15% of rookies report financial advisor as their first career and only 43% of rookie advisors have previously worked in financial services. Broker/dealers (B/Ds) and registered investment advisors (RIAs) must find new avenues for connecting with potential candidates and spreading awareness about the profession,” he adds.

Within the firm, structured training programs will be key to advisor success. Almost half (45%) of rookie advisors report that their responsibilities include managing small-balance accounts for a senior advisor, which can be a great learning opportunity for rookies who need client-facing experience. However, keeping rookies in a support role for too long can limit their growth and make it difficult for them to develop their own clients, given that 69% are responsible for building their own client base from scratch.

“A well-structured training program should gradually shift rookie advisors into production and provide a natural progression of their roles and responsibilities, so that practices can capitalize on a new resource without boxing a rookie into an operational or support role,” says Caruso. “RIA custodians and B/D home offices should actively support this transition process by providing best practices and a framework advisors can use to train future successors.”

Overall, as advisor headcount weakens, firms will need to focus their efforts on developing talent in-house. While historically, large B/Ds have driven headcount growth primarily by luring away experienced advisors from competitors, firms will need to shift gears to the growth and development of rookie advisors.