24 July 2017

U.S. Advisor Population Grows

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The number of advisors in the U.S. grew by 1.1% in 2014, the first time since 2005 the headcount had increased, according to Cerulli Associates. In a report released Monday, Cerulli reported that 308,937 advisors were practicing last year across wirehouse, broker-dealer and RIA channels, up from 305,610 in 2013. Cerulli predicted that the upward momentum would continue over the next three years. It cautioned, however, that the looming succession cliff would reverse positive growth by 2020. With a big rise in advisor retirements, the headcount will start to fall again at an even faster rate than in recent years, it said.

According to the report, the number of advisors decreased by 12.7% between 2005 and 2013. Many well-intentioned firm owners cut corners in the hiring process. Big mistake. The report attributed some of last year’s increased headcount to advisors joining existing teams rather than establishing new practices. Advisors were more heavily focused on teaming to bring rookie advisors into multi-advisor practices, and were eager to hire junior advisors to help build their practices’ top lines, it said. Some were also hiring service advisors, whose roles are more like relationship managers, to build advisory capacity for senior advisors.

According to the report, some 28% of rookie advisors are female, compared with 14% in the advisory industry as a whole. Twenty percent of senior advisors considered rookies’ limited investment or financial planning expertise to be a major challenge when grooming them for succession, and 64% also said the length of time required to learn the business was a challenge.

Cerulli said data in the new report was compiled from proprietary surveys of more than 6,000 financial advisors affiliated with wirehouses, independent BDs, regional BDs, RIAs, dually registered practices, bank BDs and insurance BDs.

Other Findings 

Advisors face challenges from aging client bases, with 57% having clients above the age of 60. Sixty-eight percent of advisors said they used niche marketing techniques, and 37% of those considered it a very effective marketing activity. Advisors reported that 38% of their clients received comprehensive written financial plans, and this would increase to 48% by 2018. At the same time, the percentage of clients receiving no financial planning services was expected to decline by 10%.

Approximately 14% of wirehouse mega team advisors said they were undecided about whether they would remain affiliated in the next 12 months, compared with 5% for all advisors across the industry. Big wirehouse teams were leaving their options open, the report said.

The appeal of the RIA channel for large advisors has put a drag on both revenue and profitability of independent broker-dealers. The report said numerous IBDs had introduced RIA platforms that allow advisors to leverage their platforms while holding a separate and independent RIA. Sixty-four percent of wirehouse and regional advisors who changed firms in the past three years said concerns about the quality of their broker-dealer’s culture had significantly influenced their decisions to move.

Among independent advisors who were planning to retire in the next five years, 52% said they had streamlined workflows in preparation, while 45% has upgraded their technology. Forty-three percent of independents preparing for retirement said they had engaged a consultant to prepare.

In preparing for succession, 45% of respondents expressed considerable concern about transferring clients to the buyer. Valuing their practice and finding a buyer ranked second and third among their concerns. Eighty percent of independent advisors who planned to retire in the next five years reported that they either had a written succession plan in place or intended to have one in the next 12 months. For employee advisors, however, this figure fell to 54%.

Click here to access the full article on ThinkAdvisor.

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