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More than one-third of financial advisors, or 111,500-plus, will be retiring this decade, along with many of their clients, creating a number of dramatic challenges for the industry.

Firms will be faced with retaining the assets of retiring advisors, which account for almost 40% of all advisor assets, managing the shrinking or slower growing assets of existing, aging clients, and attracting newer, younger advisors to help run the business and draw in the heirs of current clients. 

Nearly $70 trillion in assets is expected to be transferred from aging households to their heirs and charities over the next 25 years, with $51 trillion coming from baby boomers, according to a new report from Cerulli Associates.

These challenges are well known, but many advisory firms haven’t taken “the appropriate steps” to meet them, according to the Cerulli report. Here are some of its key highlights — both the problems and their recommended solutions.

An Aging Workforce and Threatened Talent Shortage

The average age of financial advisors today is 51, with 44% of advisors over 55 and only 10% under 35. Thirty-seven percent are expected to retire during this decade, with headcounts starting to decline in 2021. More than 20% of those planning to retire over the next 10 years have no succession plan.

Replacing these retiring advisors requires innovative recruiting and retention strategies, including the recruitment of “historically underrepresented groups,” according to Cerulli. That includes training programs that stress goal-based planning, which women and young advisors tend to embrace more than their aging counterparts, and compensation plans that give younger advisors time to build a book of business and expertise without the pressure of asset  gathering, which disadvantages rookie advisors from lower income and minority groups. Women account for just 14% of the advisor headcount, or 42,097 advisors.

To attract a more diverse workforce, advisory firms “need to collaborate — not compete — on diversity and inclusion efforts,” according to Cerulli.

The Multigenerational Wealth Transfer and Need to Attract Younger Clients

According to the Cerulli report, about one-third of the $70 trillion wealth transfer will occur over the next 10 years, which challenges advisors to “proactively establish better relations with their clients’ heirs.” 

They shouldn’t wait until their clients’ children are set to inherit their wealth but seek “a more genuine interest in the lives” of those children much sooner, according to Cerulli. “Learn what is most important to each client’s children on a more personal level and understand their different set of priorities and goals,” and learn wealth planning strategies, the report says.

Advisors should not “underestimate the importance of effective wealth transfer planning,” which involves not only the use of trust vehicles but also holding family meetings, educating family members about the responsibility that comes with inheriting significant wealth and encouraging clients to include their heirs in the estate planning process.

Advisors need to communicate with client families, and family members need to communicate among themselves “before any major transition or event to ensure expectations are aligned,” according to Cerulli.

Firms also need to adopt technology platforms, including mobile tools and video conferencing,  that not only provide more effective communication with younger clients but also help attract younger advisors that can cultivate relationships with those clients.

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