More than 72% of new advisors left their jobs in 2022, according to research released this month by Cerulli Associates.
The number of newbie advisors is barely making up for industrywide retirements and advisor attrition, according to Cerulli, and firms hoping to attract and keep new talent may need to rethink their strategies.
“Most advisor training programs are still sales-based and, much like other sales-oriented positions, they experience very high turnover rates,” said Cerulli analyst Stephen Caruso, noting that 69% of rookie advisors are building books of business from scratch.
“While that is to be expected as they begin their career, the driving source of new clients is personal relationships and referrals from personal relationships,” he said. “If a rookie advisor does not have a network to sustain them early on, they may struggle with the business development aspect of the role.”
Caruso also pointed out commissions tend to comprise around 50% of a new advisor’s overall compensation, which can put business development goals and asset gathering at odds.
“Factors such as these have an impact on the retention rate for financial advisors and represent an area where the industry can look to make improvements,” he said. “Some firms have shifted their program approach to focus on a salary and team-based approach, working to train new financial advisors on building deeper relationships and taking a financial planning approach that can result in better outcomes for trainees who may not excel as asset-gatherers.”
The research firm also found seven in 10 new advisors are being tasked with managing technology at independent firms. Those are responsibilities “well beyond the scope of financial advice,” Caruso said, and can create additional obstacles.
Cerulli stated firms need to focus more efforts on in-house training and that structured programs will be “key” to the success of nascent advisors, who are often kept in support roles for too long. Close to half—45%—reported responsibilities that include managing smaller accounts for senior advisors, a “great learning opportunity” that can inhibit growth and business development if the advisor is kept in that role for too long.
“We’ve seen firms start to switch their programs toward cultivating advisors from the start with longer training timelines and guaranteed salaries that give them the time to grow into producing advisors without tying their early compensation directly to production,” Caruso said. “Additionally, mentorship can play a large role in giving rookie advisors the support they need early on. Our research shows that both practice management professionals and rookie advisors considering mentoring from an established advisor to be a top three factor in a rookie advisor’s future success.”
He said practice management professionals suggest that five years is an ideal time frame before an advisor should be transitioned into a junior advisor role but noted it will depend on the needs of the firm and goals of the advisor.
Almost two-thirds of new advisors are recruited through word-of-mouth referrals, an indicator that firms are neglecting broader and more diverse pools of potential talent.
“Firms need to understand that broader talent pools could present lucrative recruitment opportunities,” Caruso said. “We’ve seen some larger b/ds focus on career-changing advisors, helping introduce the financial advisor career to professionals in other industries.”
Just 15% of new advisors start out in the profession, he said, while 43% previously worked in another area of financial services, and the rest came from other industries such as technology and education.
The number of financial advisors grew by just 2,579 in 2022, according to Cerulli. Based on a head count of 288,555 at the end of 2021, the firm expects there will be around 289,028 advisors by 2026, said Caruso.