A roller coaster ride is in store where advisor headcount is concerned, with the numbers inching upward but then predicted to drop significantly. That’s according to a new Cerulli Associates study, which warned of a “succession cliff” looming in the distance.
The total advisor headcount inched upward in 2014 for the first time in nine years, Cerulli reported. But the industry is on the brink of a new decline in the number of advisors, the same study said.
The increase was modest — just 1.1 percent — but given that the industry lost 12.7 percent of its advisors between 2005 and 2013, it’s a sign of “positive momentum,” according to the study.
The number of advisors grew to 308,937 for the year, up from 305,610 in 2013, according to an executive summary of the report that Cerulli sent to InsuranceNewsNet.
This momentum will continue over the next three years, the analysts predicted in Advisor Metrics 2015. However, a new decline will start in 2020, and at “an even more pronounced rate” than previously, due to a major uptick in anticipated advisor retirements.
To dampen the post-2020 declines, the industry will need to focus on recruiting and grooming new talent, the researchers said.
Triggers for growth
The Cerulli researchers attributed 2014’s growth in total advisor headcount to several trends. One was a growing tendency for advisors to join existing teams rather than create brand-new practices, they said.
A heavier focus on teaming and onboarding of rookie advisors into multi-advisor practices was a factor as well. This process entails hiring junior advisors whose purpose is to free up the more experienced advisors to focus on their “largest and most ideal clients,” Kenton Shirk, associate director at Cerulli, said in discussing the trends.
Also, some firms have been hiring “service advisors” to build advisory capacity for the senior advisors, the report said. These roles are more like “relationship managers” who are not responsible for building a client base.
Growing awareness about succession planning needs and risks contributed to the uptick too, the researchers said. Here, independent advisor practitioners have been hiring junior advisors in the hopes of grooming a “replacement advisor.” Along with this, 80 percent of independents said they currently have a written succession plan in place or plan to have one in place in the next 12 months. In addition, 52 percent of independents who are planning to retire in the next five years reported having streamlined workflows in preparation, 45 percent have upgraded their technology and 43 percent have engaged a consultant to help.
Finally, much of the hiring of new advisors has been happening within insurance-based broker/dealers, Cerulli said, pointing to hiring by insurers such as Northwestern Mutual.
But growth in the advisory ranks faces challenges ahead, and these are not just limited to approaching retirements and succession arrangements.
The aging of the advisory client base presents challenges too. Currently, 57 percent of advisors’ clients are above the age of 60, according to the study.
In addition, the length of time required for rookies to learn the business presents a challenge, according to 64 percent of the advisors. And the rookies’ limited investment or financial planning expertise is a major challenge when grooming them for succession, according to 20 percent of senior advisors.
Regarding succession, 45 percent of the advisors said that transferring clients to the buyer is a major concern, greater even than valuing their own practice and finding a buyer.
“A succession cliff looms in the distance,” the researchers cautioned. But a hopeful note is that the industry collectively has recognized the threat of shrinking talent, according to the report. Further, “many industry stakeholders have introduced initiatives to engage recruits.”
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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