It’s a trillion dollar question: How will firms replace legions of retiring investment advisors in the next few years? Current financial advisor operating models are “entrepreneurial”—firms have limited strategies in place for managing retiring advisors and limited visibility into client-advisor relationships. Couple this with an impending demographic shift in the advisor workforce, and advisor succession becomes increasingly important.
Let’s take a closer look at these two challenges:
Firms have a limited view of the client-advisor relationship and succession plans. The entrepreneurial operating model favored by most wealth management firms allows financial advisors to build deep client relationships and wield significant influence over their clients’ decisions. As these advisors near retirement and consider monetizing their portfolios, the affiliated firms often find themselves with limited insight or opportunity to intervene.
A demographic shift in the advisor workforce is looming. According to a Pershing Advisor Solutions study, in the next decade, an average of 14,000 financial advisors will retire every year. With 315,000 advisors and brokers currently working in the United States, the impact is significant—the industry will need 237,000 new advisors in the next 10 years to maintain its current headcount. What’s more, Cerulli research finds Boomer advisors over 60 manage a majority of firms’ client assets—an estimated $2.3 trillion.
Many firms rely solely on ”cutting checks” to manage advisor succession, paying retiring advisors for their clients; but it’s a risky and increasingly expensive option. What short- and long-term strategies can management implement now to manage advisor succession? Join me next week to find out.
Check out my podcast below to learn more about the challenges wealth management firms face in the future and the conversations they should be having now.
To learn more, download Advisor Succession Planning: Managing the Retirement of Baby Boomer Advisors (pdf; opens in a new window).