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
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.
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%.
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