Looming Shortage Makes Finding Financial Advisors Harder. What Can You Do?

Frankly, I’ve never had a financial advisor (other than an accountant).

It’s not that I think advisors aren’t helpful, but, not to beat my drum, I’ve done just fine on my own.

That was then. 

When I was in the accumulation phase. All I needed was a budget and a plausible investment plan, and neither seemed too hard to do for myself.

Now, I expect to reach “work-optional” status in a few months, and that’s when I expect things to be more complicated.

What Would a Financial Advisor Help With?

According to NerdWallet, the main things an advisor can help with are:

• Personal finance, including retirement planning
• Debt management and repayment (if you have debt; this is really a subset of personal finance, but it’s important enough to warrant separate mention)
• Investment advice and/or management
• Tax strategy and planning
• Estate planning

I would add to this insurance planning – what coverages you need, how high they should be, where to buy them, etc., and charitable giving – what vehicles are best, how to set them up, etc. This latter connects deeply with tax strategy.

If you’re like me, you’d prefer one financial advisor who can help with as many of the above as possible, though most advisors would likely bring in an attorney to help with estate planning and an insurance agent for that specialized service.

That’s what most people would potentially want help with. In my case, I mainly want the following:

• Review my existing (DIY) financial plan 
• Review my existing (also DIY) asset allocation
• Review our financial goals and aspirations
• Suggest what we should be doing that we aren’t already doing (e.g., permanent life insurance, strategic Roth conversions, low-cost annuities, and anything I don’t know enough to mention here…)
• Suggest how we should modify our asset allocation and whether we can safely draw the amounts I’ve budgeted (using Monte Carlo analysis and analysis of the current and projected markets)
• Provide ongoing advice as to how much to draw annually and which account(s) to draw from to optimize our taxes and react to our portfolio performance

What I need is someone I can trust with all the details of our finances and with control of at least some of our portfolio, who can provide top-notch advice, who has an investing philosophy compatible with mine, and who will tell me straight if I’m about to make a mistake or at least make a sub-optimal choice. Ideally, I want someone younger than me so they’d be less likely to retire before I’m gone, but not too young to have lots of experience and a solid track record.

Finding a Financial Advisor Will Keep Getting Harder

If you expect to want an advisor sometime over the coming decade, there’s bad news.

According to McKinsey & Company, demand for financial advisors will increase by 28% to 34% by 2034. They cite the faster growth in affluent families compared to the overall population, and a growing desire for human advisors (and a willingness to pay for it).

With such robust and growing demand, you’d expect the marketplace to draw new talent to fill the gap.

You’d be wrong.

The McKinsey study estimates that 42% of current advisors will retire by 2034, and new hires will not keep pace with those losses, let alone provide a large enough advisory workforce to meet the expected increase in demand.

Overall, the study projects a shortfall of 90,000 – 110,000 advisors by 2034, about 25% of the needed number. Increasing automation and team support can cover a portion of this shortfall, but 30,000 to 80,000 more advisors will likely be needed than those who will be available.

The study makes several recommendations for how the industry can resolve this problem, but many of those recommendations will require a massive overhaul of how new advisors are recruited, compensated, and trained.

Given how reluctant people, especially people in positions of power, are to make big changes in the system that put them in those positions, I wouldn’t hold my breath waiting for these changes to be implemented.

With such a huge fraction of current financial advisors expected to retire, a thin pipeline of new talent willing to be hired, and an increasing pool of prospective clients, it’s easy to see the unfolding scarcity. 

We can make some pretty solid guesses as to who would be most impacted.

• Younger families with smaller portfolios, so the “Assets-Under-Management” (AUM) fees they bring in are small.
• Retirees and near-retirees who don’t already have an advisory relationship and are unwilling to move all their assets from current accounts to an advisory account that charges about 1% of portfolio value per year(yeah, that’s me). 
• Remarkably, even the uber-wealthy, who want to start a so-called “family office,” are already having a hard time, according to CNBC, with demand expecting to rise by 33% in the next five years. This is because family offices come across as an especially risky position for early-career professionals, because in this space, trust overrides performance, and if the wrong single person decides he or she doesn’t like or trust you, you’re gone.

What Are the Main Causes of the Shortage?

I asked some advisors for their thoughts on why their profession seems to be contracting when they need to grow if they’re to meet client demand. Here’s what they had to say.

Lawrence D. Sprung, CFP®, Founder, Wealth Advisor, Mitlin Financial, says, “Hiring new advisors has been, and I believe will continue to be, a challenge. I think the reason is the high washout rate in the profession. Many college graduates who could eventually be great advisors go to work for sales organizations that just try to see what sticks. This creates an environment for the advisor that gives them a bad taste, and ultimately, they leave the profession before they even have a shot. 

“We need to identify those people who would be ideal candidates and put in the effort needed to develop them, so this doesn’t continue to happen. We also need to educate them on what firms create an environment that will be good for them to grow, and which others are simply interested in who and how much they can sell. That’s why at my firm, we’re creating a development path to train and mentor newly minted advisors so they can learn, develop, grow, and become joyful advisors.”

Benjamin Simerly, CFP®, Financial Advisor at Lakehouse Family Wealth elaborates, “While we have the effects of old practices to overcome, there’s a major positive shift taking place. When it comes to hiring advisors, the pool of applicants is often tainted by parents’ opinions of the advisory industry that they pass on to our applicant pool. These opinions of the finance industry are, unfortunately, often earned. 

“It’s our responsibility, as comprehensive planners, to earn back respect from the American public. Fortunately, many colleges and comprehensive planning firms are making big strides in this area by hiring serious financial planning professors for CFP® (Certified Financial Planner®) -approved undergraduate and graduate programs. Students in these programs are learning just how comprehensive our work is, and the seriousness with which firms all over the country take their responsibility to clients. Graduates of such new, rigorous programs will soon be at the age and tenure to make major changes in hiring at their firms.

“True advisory firms reach out to students, saying, ‘If you’re willing to put in the work, this can be a career for life where not only do you not have to compromise ethics, but you can build a career on them.’ Increasingly, this draws out the best of the best who want to balance family life with a meaningful career.

“This is a win-win for everyone. Colleges see increased enrollment, and students can look forward to practical salaries along with a sense of purpose. These changes help foster advisors who see this work as a calling to help families, which benefits their ultimate clients.”

Why You Should Care (or at Least Why I Care)

This may seem like it’s an industry problem.

But beyond that, it’s very much a you and me problem.

If there are 25% fewer advisors than what’s needed to serve demand, we can expect three things to happen:

1. Waitlists for top talent
2. Just like in any market, with demand outstripping supply, prices will likely increase, at least for new clients
3. With firms unable to recruit enough new talent, some may be forced into hiring less-qualified people, or at the very least, offering less personalized guidance.

What You Can Do Now (It’s What I’m Doing)

In the above, we saw the bad news.

But it’s not all bad news. There is some good news – we can take proactive steps now to make sure we’re not the ones left standing when the music stops.

• Start early: If you think there’s at least some value for you in having a financial advisor, don’t put it off for some nebulous “later” time. 
• Vet carefully: You’re about to share a lot of very sensitive info with whomever you hire, and likely hand over control of what’s significant money for you. This isn’t something you want to do with just anyone who’s calling him or herself an advisor. Collect recommendations from the wealthiest people you know (and with whom you have a relationship that makes that sort of question acceptable), vet the credentials of proposed advisors, read their client reviews, and interview several people to find the one who’s the best fit for you.
• Think outside the box: Sure, there are plenty of large traditional firms. Those may or may not be your best bet. Many smaller firms may provide far more personalized service. However, make sure you know, and are comfortable with, their succession plan, because nobody is promised tomorrow, not even your trusted advisor.
• Build the relationship now: Once you find your best-fit advisor and hire him or her, nurture that relationship. Set up regular meetings, share with them important things that happen in your life, even if they’re not strictly financial, and when you’re happy with their service, let them know – everyone wants to feel appreciated, especially when they do a great job. The closer your relationship, the more likely they’ll prioritize you over others (at least others who aren’t 10x wealthier than you).
• Learn as much as you can about AI-driven developments in financial management: The more you can do for yourself with automated tools (e.g., robo-advisors), the easier it will be to handle more minor issues if your advisor is swamped, and the more intelligent your questions and requests will be.

Brennan Decima CFP®, Owner of Decima Wealth Consulting, agrees especially with the first point, but adds an important cautionary note, “Don’t wait until a crisis or a major milestone to start your search. The earlier you begin to search, the more options you’ll have. Focus on an advisor who is a fiduciary who specializes in your specific situation rather than a generalist. If you’re not sure if they’re a fiduciary, ask for their conflicts of interest and compensation disclosure before anything else.”

Simerly offers some nuanced advice to those looking for an advisor, “When looking to hire a financial advisor, it’s all about the fit, and you should interview at least 3-5 potential advisors before picking the one you’ll hire. On the flip side, the best advisors turn away 2-5 times as many prospective clients as they take on, to ensure each one they accept will benefit most from their advisory service! This may mean the firm niches down to, say, families with children, pre-retirees, dentists, small-business owners, etc. By tightening their focus like that, they have the specialized experience and expertise their clients will value.

“Another important matter is how advisors bill, rather than how they’re licensed. Some licenses advisors must have if they’re to manage clients’ portfolios and provide access to higher-quality alternative investments require them to say that they are ‘fee-based,’ which some clients shy away from. 

“However, even if an advisor has to say that they’re fee-based, what’s really important to the client is how they actually bill, so that’s what prospective clients should ask. There are many ways advisors can bill without being biased toward what pays them the highest compensation. This includes fee-based, flat-fee, fee-only, Assets Under Management (AUM), or Assets Under Advisement (AUA) billing. When interviewing advisors, make sure you understand how they bill and what that means in your case, and make sure you’re comfortable with that.”

The Bottom Line

The supply vs. demand picture in the financial advice industry is becoming more dire with time, not less. But this doesn’t mean you’re stuck.

Taking prudent action now will make it less likely that you’ll be among those who can’t find a trusted advisor when you most need one.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.