A new report by CareerCast.com on the 10 toughest jobs to fill in 2017 reveals that financial advisor positions are the second hardest role to hire for, just behind data scientists. The report is based on Bureau of Labor Statistics (BLS) data as well as hiring trends over the last decade and job listings waiting to be filled. The report forecasts growth of the financial planning industry of 30% by 2024, which is expected to cause a serious financial advisor shortage if nothing changes.
Employers from all industries in the United States have been having trouble finding skilled labor in recent years, according to a survey by the National Association of Business Economics. But advisory firms have been hit harder, due to several factors. According to the CFP Board, there are now more CFPs over the age of 70 than under the age of 30. The average age of financial advisors is now 60, with 43% over 55-years-old and just 11% younger than 35. The aging of financial advisors, many of whom are Baby Boomers, is expected to make a big impact soon.
Boston-based research firm Cerulli Associates’ 2015 survey showed that 32% of active financial advisors plan to retire within the next decade. What’s more, the survey found that the number of financial advisors practicing in the U.S. dropped for the fifth year in a row, down 12% from 2008. With critically low levels of qualified financial advisors continuing to practice their profession, our industry faces a major shortage as demand for financial advice continues to increase.
Increasing Demand for Financial Advice
According the the Cerulli Associates survey, about 32% of all U.S. households use a financial advisor today. However, as investors near retirement, they’re more likely to hire an advisor, with 44% of people in their 60’s using an advisor. As investors approach retirement, there is increasing demand for financial advice, which doesn’t decrease until the investor dies, which could be decades.
Another segment of increasing demand comes from Millennials, who now make up the largest group in the American workforce. As they marry and start families, they are more likely to seek financial advice. Both large groups are contributing to increasing demand for advisors.
The U.S. Bureau of Labor Statistics projects that the number of job openings for financial advisers will jump 27%, or 60,300 additional jobs, by 2022. The average growth rate for all occupations in the United States is just 10.8%. The consulting firm Moss Adams forecasted that by 2022 there is likely to be a shortage of 200,000 advisors. But who will be ready to fill these positions?
U.S. wealth management firms have reported difficulty in attracting and retaining junior financial advisors for years. New advisors are in short supply for several reasons.
High Barriers to Entry
Practicing as a financial advisor requires a large upfront investment and a steep learning curve. New advisors must earn licenses, designations, and establish their new client base, oftentimes from scratch. Unlike many professions with a clear path up the ranks, the financial services industry lacks a reliably career path, causing many would-be advisors to choose careers with more predictable growth trajectories.
Sales Culture Threatens Millennials
For young financial advisors, there has always been pressure to sell, often to friends, family, and personal networks. Millennials have shown little interest in the peer to peer sales culture required in many large financial firms. Expecting new advisors to attract qualified investors from their network may be unrealistic, as most workers do not accumulate enough wealth to justify the use of an advisor until they are in their late 30s or 40s.
Lack of Mentorship and Training
Finally, the financial advisory world has historically lacked successful mentorship and training programs. Especially for independent advisors, there is a shortage of structured training programs with defined routes to success. With many experienced advisors on the verge of retirement, the opportunity for mentorship will continue to decline.
Of course, the increasing availability of Robo Advisors may help serve investors who have a hard time locating a human financial advisor. As the shortage becomes more imminent, large financial institutions are attempting to attract new recruits.
TD Ameritrade Institutional (AMTD) created their NextGen Financial Planning Scholarship and offers 12 students per year funds towards an education in financial planning. The CFP Board has expanded its reach by 30% over the past four years and is now actively working with 360 colleges to offer CFP coursework.
Other large institutions are recruiting middle-aged career changers to become financial advisors and playing up the benefits of the career choice to college students and Millennials. Despite these efforts, we’ll likely see a shortage that increases over the next decade that could lead to increased salaries and easier prospecting efforts.