As retirement exodus looms, rookie advisor failure rate at 72%, study finds

As 109,093 advisors plan to retire, comprising 37.5% of industry headcount and 41.5% of total assets, the rookie-failure rate hovers around 72%, according to "The Cerulli Report—U.S. Advisor Metrics 2023."

The number of financial advisors was largely unchanged last year, as their numbers grew by just 2,706 in 2022, the report stated. The number of new advisors barely offsets trainee failures and retirements, emphasizing the critical need for the financial-advice industry to attract and retain talent.

The report noted that over the next decade, 109,093 advisors plan to retire, comprising 37.5% of industry headcount and 41.5% of total assets. Meanwhile, the rookie-failure rate hovers around 72%. As the industry grapples with such a low success rate for new advisors who are entering the industry, firms must grow their talent pipeline and better communicate the role and training timeline of a financial advisor, the study said.

According to the report, only a small portion of rookies (13%) join the financial-advice industry as the first job in their career; however, 40% of rookie advisors work in the financial-services industry before becoming advisors. To this end, the report noted, professional networking and referrals could be as critical for firms building a pool of potential advisor candidates as it is for those who are looking to become financial advisors—nearly one-third (32%) of rookie advisors were referred by a personal contact.

Growing the advisor pipeline

So, what can the financial-services industry do to attract more advisors to the industry and hold on to them? Ramp-up time and responsibilities are important to growth, development, and retention of financial advisors, the Cerulli report said. Rookie advisors generally start in roles that are focused on increasing practice efficiency and then move into the producer role by being provided with a natural progression in their roles and responsibilities.

In addition, Cerulli recommends that senior advisors ensure that sufficient learning opportunities are provided to younger team members for experience in client-facing and asset-gathering roles. Granting rookies opportunities for development better positions a financial practice for a potential transition, as well as achieving process continuity and job satisfaction, which will lead to longer-tenured staff.

'Strong partnership' important for success

“A strong partnership between a rookie advisor and their firm is often a key reason behind successful development,” said Andrew Blake, associate director with Cerulli. “Rookies rely upon strong mentorship from their peers, exposure to successful financial advisors, and increased training on various financial-planning topics. It is crucial for RIAs and B/Ds to continue to develop programs and training methods to aid rookies in financial planning and other skills to adequately prepare them as they embark upon a new career as an advisor,” he concluded.

Sharing more ideas that will help beef up the new-advisor retention rate is Michelle Hubert, principal with Korsgaden International. “Companies and agencies often don't train new financial professionals in essential systems and processes,” she pointed out.

“Training is usually heavily focused on the sales process, neglecting other agency-growth strategies, such as developing a high-performance culture and team, managing business operations, and deepening client relationships,” she said. “Today's financial professionals must be as proficient at running a successful business as they are at closing sales."

Onboarding often a poor experience

Troy Korsgaden, another principal with Korsgaden International, added that "first impressions matter. The onboarding of new financial professionals continues to be a poor experience in the industry.

“Companies aren't setting them up for a fast start and training does not always align with the needs of a new business owner. At the agency level, joint work, one of the most effective development tools, is not optimized to its fullest potential. It can be a very frustrating experience for new financial professionals.”

Paying people well is probably the number one way to retain them, added MDRT Life Member Aviva Sapers, CEO, Sapers &Wallack, Inc. In addition, she said, mentoring them, providing them with leads or at least educating them and showing them a path for their career are some of the ways to retain them.

“We need to create a friendly, fun accepting work environment, offer great benefits and continually check in to see what they are looking for in terms of education, career path, personally, etc.,” she said, adding, “We have developed rolling bonus and live or die plans and Supplemental Executive Retirement Plans to provide some golden handcuff programs, as well.”

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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