How wealth managers are retaining top talent

May 10, 2024 11:30 AM

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The need to retain talent in the wealth management industry has become a pressing concern. More than a third of financial advisors will retire in the next decade, leaving more than 40% of the industry's client assets up for grabs, according to a January report by research and consulting firm Cerulli Associates.

This headcount problem is exacerbated by the fact that nearly 3 out of every 4 wealth management rookies fail to successfully break into the field. The industry's current efforts to support a new generation of advisors aren't proving very fruitful, with the vast majority of first-year advisors (69%) "responsible for building their own client base from scratch," Andrew Blake, an associate director of Cerulli's wealth management practice, recently told Financial Planning.

However, change is coming with an increased focus on training and development, which Blake sees as essential.

"It is crucial for RIAs and broker-dealers to continue to develop programs and training methods to aid rookies in financial planning and other skills to adequately prepare them as they embark upon a career as an advisor," Blake said.

Bank of America and Merrill are doubling down on their training efforts. Lindsay Hans, president and co-head of Merrill Wealth Management, is leading one of the industry's most ambitious training programs, which has around 2,500 new recruits now working to learn the ins and outs of the wealth management business. Merrill's latest training plan calls for starting newcomers off in its preferred banking division, which works with clients who have more money than the typical retail client but don't hit the $250,000 threshold for the firm's wealth management division.

While the focus on training and development is certainly welcome, an additional challenge is simply that not enough young people are entering the industry, making the talent pool small.

"They've been all fighting over the same talent since the beginning of time, and they'll be fighting after we're long gone," Rick Rummage, an industry recruiter and the CEO of The Rummage Group, recently told Financial Planning reporter Dan Shaw. "Whether it's JPMorgan, whether it's RBC, whether it's Raymond James, whether it's LPL, they're all fighting over the same talent."

The Financial Industry Regulatory Authority did note a slight uptick in the number of registered representatives in 2022, when the total hit 620,822. But that modest 1% year-over-year increase came after years of declines. The 2022 figure was still below the 629,475 who were in the industry in 2018.

Catch up on these stories and all of Financial Planning's coverage of the challenges of retaining talent in the industry.

Rookie development needed to offset headcount woes

Nearly 110,000 advisors will step down in the next decade — a group that manages 41.5% of the industry's assets and comprises 37.5% of its headcount, according to a January report by research and consulting firm Cerulli Associates.

"The difficulty getting new advisors to successfully choose, and remain in, the industry is a nuanced issue," Andrew Blake, an associate director of Cerulli's wealth management practice, wrote in an email to Tobias Salinger, chief correspondent at Financial Planning. "Ultimately, rookies need more training and development related to financial planning topics and techniques."

Big wealth management firms are beginning to get the message.

"Many of the largest firms, including Morgan Stanley, Wells Fargo, UBS and Edward Jones, have attempted to modernize their training programs by revamping placement strategies, durations, goals and compensation structures," Blake said. "Firms cannot lose sight of how much rookies hired today and purposefully mentored could mature over the next decade."

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Shrinking headcounts a growing problem

Competition for advisors continues in small talent pool

The research firm Cerulli Associates reported last fall that the number of advisors joining independent firms had risen at a compound annual growth rate of 5.2% over the past decade, hitting 78,282 by the end of 2022.

This battle for talent between long-entrenched wirehouses and other Wall Street players and small RIAs and brokerage houses will continue to rage for a long-observed reason: Too few people are coming into the industry to replace the experienced and well-connected advisors who are retiring.

"The big winners in the near term are likely to be the RIAs and independent broker dealers who can help advisors achieve the self-reliance that many crave," Michael Terrana, an industry recruiter and the founder of the Terrana Group, told Financial Planning's Dan Shaw.

Read more:

Fighting the tides of wirehouse attrition

Industry insiders emphasize inclusion as driver for retention

Recruiting advisors is expensive, so it pays for wealth managers to focus on retention rather than replacement. Key to successful retention is creating an inclusive environment for all employees to thrive, according to Richard Shaw, CFP Board director and principal, and senior client advisor at Bessemer Trust.

"Without inclusion, retention is not possible," Shaw said, speaking as moderator of a panel titled "Creative Retention Strategies: Case Studies in Practice" at the CFP Board Center for Financial Planning's sixth annual diversity summit in Arlington, Virginia, in November last year.

Panelists from Edward Jones, RIA Abacus Wealth Partners and Charles Schwab shared their insights and tips on how leaders can not only hire diverse talent, but also keep it.

Read more:

Retaining diverse talent is tough — 3 tips on how to succeed

Training forms core of Merrill plan to grow advisor numbers

"We need more advisors," Lindsay Hans, the president and co-head of Merrill Wealth Management, said at BancAnalysts Association of Boston Conference last November. "It's a $65 trillion market in U.S. wealth management that was $25 trillion 10 years ago. So there's actually not enough advisors in the industry to go around to grab that."

Part of the solution for Hans is training. Merrill has roughly 2,500 new recruits enrolled in a program that furnishes them with client leads and gives them access to the breadth of wealth management services the firm has to offer. But if Merrill is to succeed, it will have to look beyond training.

Attempts to recruit select advisory teams, said Hans, are "something we had turned off, but we're turning back on for the right markets." Hans also acknowledged that the retention of existing advisors and organic growth will have to play a big part in the firm's ambitions.

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Merrill placing bets on training, organic growth for bigger slice of wealth pie

How to retain talent when the ‘perfect match’ isn’t so perfect

Mergers are commonly presented as a "match made in heaven."

"They do the announcement, everything is perfect," said Mark Huber, CEO of Birkman, a tech firm that helps companies from different industries create and retain high-performing teams, including in the wake of a deal.

Yet, more than half of deals in the wealth management industry fail, according to a recent Fidelity study, as "most transactions fail to realize the promised result," Huber said.

So, what should a wealth manager do to ensure it retains top talent after an M&A deal, particularly if the relationship turns sour? Financial Planning talked to industry leaders to find out.

Read more:

3 tips for leaders to keep talent, post-M&A honeymoon