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When it comes to the issue of retirement, advisors are likely focusing on helping clients that are pre-retirees and those already in retirement navigate the challenges arising from exiting the workforce and experiencing a significant drop in steady employment related income.
Then there’s the matter of the great wealth transfer. With an estimated 10,000 baby boomers retiring every day, many of whom have sizable assets, those clients deserve attention and all of that is to say advisors have full retirement plates. As such, many advisors might not be deeply immersed in their own retirement planning and they might not be thinking about how a wave of retirements could affect the industry at large.
And yes, it’s a wave. By some estimates, advisors currently overseeing 40% of assets under management in the U.S. are poised to retire over the next decade. Alone, that’s not necessarily cause for alarm, but the concern is amplified when considering advisor population growth is sluggish.
Data indicate that the number of registered investment advisors in the U.S. was flat in 2023 relative to the year earlier figure. That’s an ominous statistic when considering many advisors are baby boomers, meaning, as is the case with many of their clients, their inching closer to retirement. Yes, many advisors have succession plans in place or will sell their practices.
Taking a Different View of Mentoring
There are moving parts in advisor retirement. Some may opt to sell the practice to external parties, take the ensuing payday and be on their way. However, other advisor are seeking to establish internal succession plans, be they through employees or family members currently on staff.
In those cases, the departing advisors are likely to keep some watch on how the practice operates after they leave. That means mentoring is essential. On the surface, mentoring the next generation of advisors is important and rewarding, but advisors often let things get in the way of mentorship success.
“But also on your way toward retirement, it’s hard to train people well, and it’s hard to be a good mentor consistently. So, I think sometimes the aspirations don’t line up with how it plays out,” said Andrew Blake, associate director of wealth management for Cerulli Associates, in an interview with Morningstar. “Advisors who are getting especially close to retirement naturally are going to be taking more vacation time and delegating more tasks. Adding mentoring as an additional task, which is a time-consuming role, doesn’t happen to the extent advisors like to believe it will.”
Mentorship isn’t just about a “replacement theory.” It’s about ensuring success of younger advisors and clients alike. Consider the following data published by Cerulli earlier this year.
“The rookie failure rate hovers around 72%. As the industry grapples with such a low success rate for new advisors entering the industry, firms must grow their talent pipeline and better communicate the role and training timeline of a financial advisor.”
Fortunately for advisors, the future success of the industry isn’t entirely on them.
Other Parties Can Help
Beyond advisors grooming potential successors, offering internships and the like, there are other elements when it comes to sustaining and growing the overall advisor population. As Cerulli’s Blake said in the Morningstar interview, the average age of U.S. advisor is 37, meaning this likely isn’t their first career.
There’s nothing wrong with career change. It happens all the time. Likewise, 37 isn’t old. However, it’d be more beneficial to the industry and clients if more advisors got started younger. Say taking related classes in college. In fact, Blake endorses the idea of starting the CFP process while in college.
“I personally love that idea and the idea of beginning the CFP process while you’re in college. Broker/dealers should absolutely be working to expand their programs and be sponsors where they can and be visible on campus with financial education events, making the industry seem more exciting,” he told Morningstar.
That strategy could go a long way toward bringing new advisors into fold at a time when many of their more seasoned counterparts are eyeing retirement.
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