While the aging of the advisor work force is not a new issue, new research suggests that the key partners of independent advisors — custodians and broker-dealers — face a serious risk to their business models as advisors age, while dually registered advisors, the biggest growth channel within the business, are facing increased scrutiny by regulators. Moreover, the wirehouses remain the largest channel by assets and have seen new growth through their “right-sizing” efforts, though they are focused more on retaining current advisors than recruiting new advisors to their model.
A recent study by Cerulli Associates found that nearly half of the advisor work force is at or near retirement, which makes it even more urgent that firms recruit younger advisors to accelerate their succession plans, and puts BDs and custodians at risk of losing assets under management.
“The average age of financial advisors is 50.9, and 43% are over the age of 55,” reported Kenton Shirk, associate director at Cerulli, in releasing the research firm’s newest study, “Advisor Metrics 2013: Understanding and Addressing a More Sophisticated Population.”
The study found that nearly one-third of advisors fall into the 55 to 64 age range.
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Cerulli focused on advisor trends and consumer information, including market sizing, advisor product use and preferences, and advice delivery.
“As the advisor population ages, broker-dealers and custodians are at risk of losing AUM as advisors exit the industry,” Shirk explained. “The independent channels are most at risk because they have the oldest advisors on average.”
Broker-dealers, Shirk added, “continue to struggle to recruit new young advisors into the industry to offset those advisors who are nearing retirement.”
Cerulli says that firms should encourage “advisor teams to bring in junior advisors and train them in a specific area of expertise in order to increase the success rate of these new recruits.”
To guard against asset attrition, broker-dealers and custodians need to provide support and resources to help advisors tackle succession planning and develop internal succession candidates. Cerulli noted in a separate study, “Challenges to the Advisory Industry,” that because one-third of advisors plan to retire within the next 10 years, “it behooves them—as well as broker-dealers and custodians—to prepare now,” as it can take one year or longer to identify a successor, conduct due diligence, strike a deal and execute a transition.” Cerulli pointed out that the timeline is “much longer” for those grooming an internal successor. “To maximize value, advisors should take proactive steps even sooner to build buyer appeal and maximize future client transfer.”