With the average age of a financial advisor over 50 and nearly 1/3rd of all financial advisors projected to retire in the next 10 years, there is a rapidly rising demand for next-generation talent to replace them. And the demand is only further amplified by the ongoing shift of the advisory industry from commission-based compensation to (recurring) AUM fees, which for the first time make it viable for advisory firms to hire a deep bench of Support and Service advisors to retain existing clients without any need to be responsible (or successful) at finding their own new clients.
Unfortunately, though, the past two decades of a rising movement of independent advisors amongst both the independent broker-dealer and independent RIA channels has drastically reduced incentives for firms to develop their own talent. Creating a prospective next-generation talent shortage at the exact moment it’s needed most.
And the rising talent shortage is increasingly evident in the latest industry benchmarking data of the 2018 InvestmentNews Compensation and Staffing study, which shows that advisory firms are being forced to hire Service advisors from outside the industry and poach Lead advisors from competing firms just to fulfill their talent needs, due to the lack of up-and-coming next-generation Support advisors. And the shortfall is especially evident amongst the largest independent advisory firms that are experiencing the fastest growth rates and are overwhelmingly seeking to hire Support and Service advisors to deepen their bench.
Fortunately, though, the model of gaining “professional leverage” by using support professionals to improve the efficiencies (and economics) of partners is well entrenched in most professional services firms, from doctors (that typically have several nurses per doctor), to accounting firms (that have as many as 10 employees per partner), and law firms (which sometimes have as many as 25 employees per partner). Which suggests that, as advisory firms continue to transition to recurring revenue advice models, there is still ample room for further hiring and talent development to occur, especially in a world where 76% of advisory firms still have more Lead advisors and Partners than Support and Service advisors to work with them. Nonetheless, the apparent rise of a talent shortage means that the advisory industry may witness substantial upward pressure on advisor compensation in the coming years until it can attract enough next-generation advisors to fulfill the demand!