June 27, 2023
Jason Diamond Quoted
By Victoria Zhuang
Financial advisors overseeing trillions of dollars of assets are preparing soon for their retirement years, making new talent an important commodity in wealth management.
But those entering the profession these days aren’t finding it a welcoming place.
A new report by industry research firm Cerulli Associates estimates that in 2022, over 72% of early-career “rookie” advisors, defined as those with three or fewer years in the role, failed and left the profession. Despite adding 18,207 new trainees last year, the industry lost 13,169 of them, Cerulli said in the report, which it announced in a press release Monday.
Factoring in another 2,459 advisors who retired, firms only added a net estimated 2,579 new advisors last year, Cerulli found — a number that it said is “barely offsetting” advisor departures. In other words, wealth management as an industry appears headed for a massive succession cliff — unless it reverses course quickly.
‘Where the rubber hits the road’
By investing early in a strong talent pipeline, recruiting more broadly and devoting extra resources to developing their junior talent, financial advisors can set themselves up for long-term success and their own smooth transition to retirement someday. But that’s a hard sell for many, who are more focused on their immediate bottom lines, according to industry recruiter Jason Diamond.
“We get calls from advisors and firms all the time, literally every day, telling us that they need additional resources — they need advisors to free up capacity,” said Diamond, the vice president and senior consultant at Diamond Consultants in Morristown, New Jersey.
“But when the rubber meets the road, unfortunately, the types of people we’re talking about are revenue-negative for at least some period of time … and a lot of firms or advisors are not willing to eat that.”
Diamond said that typically he’s seen advisors take a minimum of three years to build up enough contacts and an asset base to be profitable to their employer — and in many cases, from five to seven years. When the advisor hits around $200,000 in revenue, that tends to be the turning point — keeping in mind that the employer may keep around 40% of that — but that means managing over $30 million to $50 million in assets, Diamond estimated.
“That’s a lot of money. It’s hard to do. It takes time. Especially (for) somebody young, who doesn’t have an extensive network of wealthy individuals to tap into,” he said.