That's because the big producers who have been highly sought after (and handsomely compensated) in recent years are in the same boat as many of their clients: They're going to retire soon.
So just as the wirehouses, as well as regionals and firms in the other channels, are gearing up for an onslaught of retirement business from boomer clients (see our Retirement Roundtable on page 30 to hear from some of the top voices in the industry on this topic), they are also facing a loss of their own advisor force to the same demographic tidal wave.
The average age of an advisor is just shy of 49 years old, and 14% of advisors are over 60, according to a new report by Cerulli Associates in Boston.
Combined with the move from transactions to fee-based relationships, that means that broker-dealers have a big problem on their hands, Cerulli says.
The clients of aging advisors are more loyal due to advisory relationships, which is good. But it's not so great for newcomers hoping to build a business because potential clients don't jump ship as readily as they once did. Add to all of that the outdated hiring and training practices by broker-dealers and there just isn't much to lure a new candidate to the industry. "New hires are expected to start up their practices with little more than a cubicle and a phone book," according to the Cerulli report.
Furthermore, a firm the size of Wells Fargo, for example, must recruit 2,000 advisors per year just to keep pace with attrition, Cerulli estimates. Meanwhile, the total universe of advisors shrank to 309,693 from 313,705, or approximately 1.3% between 2004 and 2008.
This year, several wirehouses and firms such as Edward Jones & Co., "are increasing recruitment of new advisor classes, though usually at levels still a bit below the highs of 2006 and 2007," the Cerulli report says.
The seemingly small response from a handful of companies to the talent shortage problem has lead some industry observers to argue that firms remain focused on driving profits and increasing their overall performance while disregarding the need for additional training programs.
But, one approach to training could allow broker-dealers to have their cake and eat it too, says Jeff Strange, associate director of Cerulli. Rather than bring in as many recent graduates as possible and teach them to cold call and see who survives, firms should update their training programs to replace advisors who are on the brink of retirement, Strange says.
If firms were more discriminating off the bat and assigned new recruits to teams of more seasoned advisors, those younger advisors would learn the ropes more efficiently, Strange says. "Training programs are expensive," he says. "But in a team, senior members increase their production because new recruits can take over some financial planning and due diligence tasks [so those new advisors] learn about the nuts and bolts."
Of course, financial firms will need to continue to recruit high producers to lead these teams, a structure that lends itself to succession planning.
That, in turn, provides a path for new advisors to build profitable practices, Strange says. In fact, the Cerulli report contends, "recruiting efforts at larger firms will need to include inexperienced candidates to maintain scale." But, that also means that trainees operate as "a net expense for a year or more," Cerulli says.
So just how are wirehouses and the regionals addressing this problem right now?
At Morgan Stanley Smith Barney, for instance, supporting retiring advisors is an integral part of the replenishment process. According to the company, it has created a retiring advisor program that assists those producers who are planning for and changing their businesses over a suitable length of time before their expected retirement.
Also, the mentoring and teaming of new associates who will eventually partner with existing teams is another strategy the firm is using to tackle the talent problem looming over the industry. "Teaming provides significant lead time for appropriate succession planning for advisors who want to retire," the company said in a statement.
Merrill Lynch, for its part, has created a series of programs as well. Its client-transition program allows customers to work with advisors who are part of a team over a four-year period. If an advisor is not part of a team, then the clients go over to other advisors in the office, a spokesperson for Bank of America Merrill Lynch said.