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Kitces Research: Advisor Wellbeing on the Decline Among Minorities, Next Gen

Twenty percent of advisors are “struggling,” particularly minorities and younger industry participants, according to new Kitces research.

While wellbeing and mental health has become a more mainstream conversation among the wider U.S. population since the pandemic, it’s a topic still largely untouched by the financial services industry, and some studies show that financial advisors are, in fact, more prone to depression, addiction and burnout, than other professionals. New Kitces research hopes to measure and track trends across advisor wellbeing, just as the industry benchmarks anything else.

The Kitces Research 2023 Advisor Wellbeing Study, which surveyed 1,500 members of advisory teams, found that advisor wellbeing is roughly on par with the U.S. population, yet 20% of them are “struggling.” Kitces asked respondents to rate their current level of life quality, or wellbeing, on a 0-10 scale, and 14% reported a wellbeing rating of 9 or 10 and fit into the category of “thriving advisors.” Another 20% reported wellbeing rating of 5 or less, falling into the group  Kitces calls “struggling advisors.”

“Monitoring wellbeing is important not only because happiness – not a balance sheet – is the fundamental driver of success for many advisors, but also because advisors who enjoy what they do are also more likely to remain advisors and serve their clients well,” the study said.

The study also found that overall advisor wellbeing is down slightly from the firm’s 2021 wellbeing study, with the average 2023 Cantril rating down 3% from the 7.05 mean reported in 2021. (The “Cantril ladder” is the name for the 0-10 scale, with the best possible life being a 10 and the worst possible life being a 0.) In 2021, some 44% of respondents indicated they strongly agreed with the statement “My life is going well,” compared to 40% in the 2023 study.

But the Kitces report says the decline in wellbeing is not statistically significant, and rather the change represents the fact that this year’s study skewed towards newer and younger advisors, “who tend to struggle in the early stages of their careers,” the study said. Advisors over the age of 54 actually reported slight increase in wellbeing in the last two years.

Declines were dramatic, however, among minorities and younger industry participants, with mean ratings for minorities and 18- to 34-year-olds, respectively, down 13% and 11%. For females, Cantril ratings fell from 7.1 to 6.8.

“The wellbeing declines for these groups are notable, as women, minorities and younger advisors are all domains where the industry has placed significant recruiting effort in recent years,” the report said. “On the one hand, this implies the makeup of these segments is changing in ways that may be determinantal to wellbeing – these segments generally have less experience and lower income than they had in 2021, characteristics associated with lower wellbeing. Nonetheless, these research results suggest that firms may not be effectively training and supporting those groups as they are recruited, resulting in declining overall wellbeing as more come into roles where they may be struggling.”

The research found two factors—“Autonomy” and “Experience”—to be the strongest drivers of advisor wellbeing.

“Advisors that best fit within the autonomy cluster prioritized work-life balance, had enough command over their work schedule to work their desired (typically lower-than-average) work hours, and was confident in their ability to perform their role,” the report said.

For example, “thriving advisors” put in just 79% of the work hours that “struggling advisors” did.

The advisor’s experience level also correlated to their happiness, with older advisors having a more mature practice with more affluent clients, and being long past the difficult “startup” phase.

“Due to lack of experience, the early years of an advisor’s career are typically the toughest, but there are ways to make the early-career stage more manageable,” the report said. “New advisors should aim to avoid ‘eat what you kill’ entry roles and working in start-ups. These are both scenarios where earnings are heavily dependent upon business development success, with the risk of failure preventing the new advisor from progressing to the more experienced, and less stressful, career years ahead.”

The Kitces report also found a strong correlation between wellbeing and business success.

“The caveat here, however, is that correlation doesn’t necessarily equate with causation. In other words, because of their happiness, advisors might be better able to achieve productivity and profitability. But conversely, another explanation is that advisors grow happier as their practices become more successful,” the report said.

Across most key business metrics, including AUM, revenue, income, hourly earnings, revenue per client, advisor income per client, gross margin and share of time meeting with clients, happy advisors outperformed struggling advisors.

Advisor engagement is also stronger among happier advisors, with thriving advisors being about four times less likely to leave their current employer or platform relative to the struggling group.

“In this context, positive wellbeing is particularly important for employers or platforms interested in minimizing advisor turnover and retaining their employees or affiliates in what is a very competitive market for both.”

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