Wirehouse practices are also the most likely to insource portfolio construction—while one-third of those advisors at least start the investment process with a home-office model, many end up altering it to suit the clients’ needs. Wirehouse advisors also use separately managed accounts (SMAs) and alternatives at twice the industry average across all channels.
“A select group [of advisor channels], including the wirehouses, have achieved unrivaled scale and resources to support affluent and high-net-worth families,” wrote the report’s authors. “Many other B-Ds are equally focused on advisor productivity, technology, teaming and specialization, but not all B-Ds are equipped to move far upmarket. It will prove increasingly difficult to differentiate and compete in the mass-retail and mass-affluent markets as investment management and basic planning services become further commoditized.”
Changing Investment Preferences
Cerulli predicts the continued decline of the traditional mutual fund in favor of other investment wrappers. While 30% of advisors currently use mutual funds, an estimated 26% will in 2024, a 13% overall decline.
ETFs will get most of those funds—while 21% of advisors currently use ETFs, by year 2024 Cerulli predicts that 24% of advisors will use ETFs, a 16% overall change.
Individual equities, money market funds and cash will also fall in popularity, said Cerulli, in favor of SMAs and alternatives, which are going to grow in popularity.
Rookies And Retirees
Over one-third (37%) of broker-dealer advisors plan to retire over the next 10 years, according to Cerulli, setting in motion $9 trillion in assets. Of all the broker segments, independent broker-dealers (IBDs) have the highest portion of advisors ready to retire, with 42% poised to leave the workforce over the next 10 years.
National and regional broker-dealers (38%) and wirehouses (37%) will also suffer significant losses due to retirement, Cerulli said.
At the same time, the broker-dealer segments are having difficulty holding on to their rookie advisors. According to Cerulli, 11,482 rookie advisors will fall out of the industry next year, giving broker-dealers a one-year success rate of 23%.
While rookie advisors generally expressed satisfaction with the support firms gave them for licensing, Cerulli said there were areas in which firms could improve their support—for instance, by helping advisors with goal-setting and training on financial planning, investment analysis and sales techniques.
Conversely, practices say their biggest challenge in grooming junior advisors is the advisors’ expectations of advancing in their careers too soon, said Cerulli, followed by inadequate sales skills and their need for too much time in day-to-day training.
Only 28% of advisors across segments have a junior advisor in their practice ready to succeed them. Another 21% intend to have a junior advisor or family member succeed them but may or may not have them—or a concrete plan—in place.
As a result, approximately one-fourth of advisors expecting to retire over the next decade are unsure of their plans right now, and another 13% are relying on their parent firm to reassess their clients internally.