Cerulli: ‘Succession Cliff’ Looms for Advisors

A study from Cerulli Associates is a classic dose of good news overshadowed by a troubling outlook for the future. According to a headcount, the ranks of financial advisors grew modestly in 2014. However, this growth is expected to be significantly tempered by a looming “succession cliff,” according to the study’s authors. These trends have wide implications for financial professionals in the insurance industry and elsewhere, especially with regard to how they can continue to acquire and maintain the best talent. According to Cerulli, the total number of financial advisors operating in the U.S. increased by 1.1 percent in 2014, the first time the number has risen in nine years. This follows almost a decade of continuous decline, with a 13.7 percent reduction in the number of finance professionals between 2005 and 2013. Given that fact, the recent uptick in numbers is welcome news, no matter how slight.

Reasons for growth, setbacks to come

The Cerulli study attributed this new growth to a variety of factors. Among the many influences was an observed tendency for new advisors to join existing firms rather than starting off in their own practice. The authors of the study also saw a renewed focus on onboarding and team building in the hiring and training process at many financial advisor firms. Cerulli associate director Kenton Shirk told InsuranceNewsNet that this trend allowed junior advisors to pick up the slack of day-to-day operations, leaving senior and more experienced advisors free to pursue more high net worth clients. Along with a growing trend of hiring ancillary “service advisors” to streamline overall productivity, the study’s authors suspected most senior advisors were well aware of the coming shortage, and taking steps to mitigate any potential losses.

Cerulli believes this increase in the number of active advisors will continue into 2017. After that point, however, the future is less rosy. In a survey of current advisors included in the study, 64 percent of respondents cited the time required for new hires to learn all the intricacies of the business as the primary roadblock to growth. Others expressed concerns regarding the transfer of clients to new advisors, with 45 percent citing this as a major issue. In addition to these pain points, the client base of financial professionals is in the midst of a huge shift. About 57 percent of advisors’ clients are older than 60, according to survey respondents.

A mixed bag for advisor firms

The overall takeaway for financial professionals based on the Cerulli study is relatively mixed. According to Financial Planning, registered investment advisors and channels that are dual-registered should see growth, while the rest of the financial services industry won’t share those benefits. On the whole, Cerulli estimated 25,000 jobs will be eliminated over the next four years, mostly due to advisors aging out without immediate replacements to be found. Explaining the potential for growth in one channel and not others is difficult, however.

“The outlook for independent RIAs is bright,” financial advisor Ron Rhoades told Financial Planning. “Consumers are looking for financial and investment advisors who truly put the best interests of the client first and foremost by avoiding the many conflicts of interest so prevalent in financial services today.” Furthermore, industry analysts expect growth in the financial services sector to become more concentrated as technology expands the gap between the most successful firms and the rest of the pack.

The Cerulli study demonstrates the continued emphasis firms must place on attracting the best talent, as well as training and retaining them. Firms that can balance the coming wave of retiring advisors with an increasingly limited pool of new prospects will surely be the most successful for the next several years.

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