Could the financial advice industry reach a point where there are more retiring advisors than new ones to fill the gap?

Based on the latest Asset and Wealth Management report from Cerulli Edge, much work needs to be done to combat a shortage of new recruits and retain them.

The industry, Cerulli said, stands to lose 106,264 or 36.8% of advisors to retirement and an estimated $11.9 trillion or 38.9% of assets from those leaving the practices of retiring advisors.

Meanwhile, the report found that advisor headcount grew by just 2,579 last year, barely offsetting retirements and trainee failures, as firms struggle with high wash-out rates. With a rookie advisor failure rate of mor than 72%, Cerulli said broker-dealers and registered investment advisors must explore new ways for connecting with potential candidates and spreading awareness about the profession.

“Firms need to approach talent pipelines with a new direction, understanding that quality candidates could come from not just regular recruiting from the industry at large,” said Stephen Caruso, research analyst at Cerulli, noting that there are people in other professional industries that have transferable skills.

The report found that 64% of new advisor recruiting is done by word-of-mouth referrals, which limits firms’ abilities to reach a diverse pool of applicants. Firms, it said, would benefit from hiring and training younger advisors who generally would attract a younger client base. “Not only does this diversify the practice’s clientele, but it also helps mitigate asset outflows from retirees taking regular distributions,” the report said.

Four in five rookie advisors cited wanting to help others reach their financial goals as the main reason for entering the field. To that,  Caruso said firms should invest in new advisors by providing them with strong mentorship, exposure to successful advisors, and training in financial planning topics to help them succeed.

“As B-Ds and RIAs enhance their rookie development programs, they should prioritize both technical planning expertise and softer skills that prepare new advisors to guide investors through planning conversations,” the report said.

Also key to a rookie advisor’s success is a structured training program. The report said 45% of rookie advisors indicated that their responsibilities include managing small-balance accounts for a senior advisor, which it noted is great exposure to client-facing experience. “However, keeping rookies in a support role for too long can limit their growth and make it difficult for them to develop their own clients, given that 69% are responsible for building their own client base from scratch,” it said.

“A well-structured training program should gradually shift rookie advisors into production and provide a natural progression of their roles and responsibilities, so that practices can capitalize on a new resource without boxing a rookie into an operational or support role,” Caruso said. “RIA custodians and B-D home offices should actively support this transition process by providing best practices and a framework advisors can use to train future successors.”

Cerulli further pointed out that firms must be mindful that many new advisors are career changers who bring valuable experience and skills to their new roles. On average, they are 37 years-old or 13 years younger than the average advisor, and many of them (43%) have worked in financial services, mainly in sales, marketing, or investment role, the report said, adding that only 15% of rookies report financial advisor as their first career.

Additionally, the report said half of all advisors’ clients are aged 60 or older, compared with only 38% of rookie advisors’ clients. “For this reason, practices greatly benefit from hiring and training new advisors who generally serve a younger client base. Not only does this diversify the practice’s clientele, but it also helps mitigate asset outflows from retirees taking regular distributions,” the report said.

As for succession planning, Caruso pointed out that 26.3% of advisors retiring within the next 10 years are unsure of their succession plan. Succession planning, he said, should have started a lot earlier and advisors should have a general idea of their plan as early as possible in their career so that it becomes less of a challenge long term.

And while 73% of advisors view the emotional aspects of transferring clients to a new advisor as a major challenge, Caruso said there are ways to lessen that impact.  “It doesn’t mean that you have to retire right away. You can build a plan with other advisors in your practice, you can source external advisors from other RIAs in your area, or work with other teams at your broker-dealers to find a solution or find  teaming solutions that really help,” he said. “Doing so ensures continuity of care and mitigates potential client concerns.”