Kris Carroll spent more than a decade mentoring young people who were interested in becoming financial advisors. As a managing director of the Carolinas for Wealth Enhancement Group and former adjunct professor at Winthrop University, he’s seen first-hand the industry’s struggles to bring in new talent. For a long time, poor awareness and low pay made it difficult to attract new blood.
While recruitment has improved in recent years, he said those slow years have left the financial advisory industry with a problem: What will it do when all the current advisors retire?
“If you’ve got people who are 70 who want out, and a whole bunch of 25 year-olds, that doesn’t make for a smooth transition,” he said. “That gap is almost too big.”
The financial planning industry is facing a looming staffing crisis over the next decade. By 2034, the sector will be short roughly 100,000 advisors, according to a report released earlier this year from McKinsey & Company.
That shortage comes at a bad time. Americans are building more wealth than ever, adding more than 379,000 millionaires last year, according to UBS. More than 30 million Baby Boomers are expected to retire by 2030, and many of them will be looking for planners to help them through their golden years. McKinsey estimates that the number of advised relationships will grow at least 28% in the next decade, from 53 million last year to at least 67 million in 2034.
To meet demand, the industry needs to grow by 2.5% to 3% annually. Instead, McKinsey said, headcount is expected to shrink by about 0.2% per year.
“The industry is facing a monumental challenge,” the report said, “with no easy solution.” It blamed the shortfall on a combination of factors, including rising demand, an aging workforce, and recruitment difficulties.
Part of the problem is demographics. The typical financial advisor is 48 years old, and with more than 44% older than 50, a large swath of the industry is expected to retire in the coming decade. And there aren’t enough younger workers who can take their place.
Carroll said that for decades, the industry didn’t do enough to market itself to college students. In business programs, financial advising was often overshadowed by more high-profile and traditionally lucrative paths like investment banking and private equity.
People “know what an accountant is. They know what a CPA is,” Carroll said. “We’re still struggling as an industry with people knowing what a CFP is.”
It isn’t just attracting young people – it’s about getting them to stay. 72% of new advisors leave the industry within five years, according to research firm Cerulli, with many put off by the struggles those early years can bring. New advisors at large firms can spend the first few years working long hours as they struggle to bring in clients in an industry that often relies on an “eat what you kill” mentality.
“Whatever assets you’re managing, usually that determines your income for the year,” said Chase Wickenheiser, Vice President and a wealth management advisor at Magnus Financial Group LLC, a New York City-based investment advisory firm. “So it’s a lot of peanut butter and jellies and ramen noodles while you’re building up that book of business.”
That can be a humbling experience for recent grads, especially the kinds of ambitious ones who pursue finance, said Gabriel Shahin, president and CEO of Falcon Wealth Planning, an investment advisory firm. He has seen promising young hires leave his firm out of frustration of how long it takes to pass the CFP exam and start building their own client base.
“The ones that want to get into a high-performing industry are typically achievers,” Shahin said. “And the problem with this industry is you don’t see results right away.”
“Does the firm disappear? What happens next?”
All of this is putting pressure on some smaller firms, where owners and top managers are having to stay in their roles longer, unable to retire without younger advisors they can hand over the reins to.
“A lot of them have not made a succession plan, and they have nobody in their firm to help and take over,” said Karen Alfest, executive vice president of Altfest Personal Wealth Management, a fee-only fiduciary advisory firm. “So if they go, if they’re hit by the proverbial bus, does the firm disappear? What happens next?”
Some advisors worry that smaller firms will either close up or be bought out by larger companies, potentially leading to higher fees and worse service for clients.
Natalie Pine, the managing partner at financial advisory firm Briaud Financial Advisors, said she’s already seeing consolidation. She’s worried that clients with unique needs will be left out.
“They can’t customize for you,” she said of the larger firms. “They can’t do a personal financial plan for you. They have to do what’s in their systems and processes.”
What can the industry do?
The industry has made moves to reach young people. The CFP Board has run ads to raise awareness of the profession and more colleges are offering financial planning majors. Still, many advisors say that there’s still a way to go.
“It’s education,” said Carrol. “It’s people understanding that the job exists and that the demand is there.”
There are currently 195 undergraduate programs and 54 graduate programs nationwide, according to the CFP Board. The number of educational programs – which includes undergraduate, masters, doctorate, and certificate programs – has grown 13% in the past five years, according to Johel Brown-Grant, the CFP Board’s director of education.
It isn’t just about how firms recruit but who. In an industry where more than three-quarters of the workforce is male, some argue that this is a chance for firms to broaden their outreach and try to draw in more young women.
Lillian Turner has worked in the industry for about 8 years, first as an intern and then as an advisor before now running her own personal financial advisory firm, Daring Greatly Wealth. She described the industry as “pale, male, and stale”, something that discourages women who might otherwise want to pursue the profession. That, she said, is detrimental to a field that’s so human-focused.
“I think women have more of the natural skill sets of really good financial planners,” Turner said. “We’re amazing listeners. We love educating. We see the world a little bit differently, more empathy, which is where the industry is going.”
Despite the challenges, some younger advisors are optimistic about the industry’s future. Wickenheiser, 28, predicts AI will make the industry more efficient, helping advisors carry larger books and offset some of the loss in workers. That, plus the huge transfer of wealth he anticipates as Baby Boomers pass down their savings to their children, means a lot of business for young people who do choose the field.
“I think there is a major opportunity for the ones who do want to take up that mantle,” he said.