The advisor population has grown at just 0.3% a year over the last 10 years, and it’s expected to decline by 0.2% annually over the next decade, according to a new report by global management consultant McKinsey & Co. The report projects that by 2034, the wealth management industry will see a shortage of roughly 100,000 advisors unless steps are taken to combat the decline.
“The industry is facing a monumental challenge—addressing a 100,000-advisor capacity shortage over the next 10 years—with no easy solution,” the report said. “Wealth managers will need to focus on attracting new talent to the industry, helping them be more productive and successful, and further increasing productivity of the mid-career and established advisor population.”
The report “The looming advisor shortage in U.S. wealth management,” cites the growing demand for financial advice as the driver of the shortage. Revenue from fee-based advisory relationships is up from $150 billion in 2015 to $260 billion in 2024. Meanwhile, the number of human-advised relationships has grown three times faster than the population over that same period.
The factors driving that growth include the rising wealth of the U.S. population and an increasing willingness to pay for human financial advice, McKinsey said.
“Historically, the industry has been able to meet rising demand by making slow but steady gains in advisor numbers and productivity,” the report said. “However, capturing the advice opportunity will be more difficult as the advisor population ages and their numbers start to decline, and as the immediately accessible productivity gains are realized.”
McKinsey’s shortage prediction is based on the fact that about 110,000 advisors, or 42% of total industry assets, are expected to retire in the next decade. And retirements are outpacing recruiting.
While much of the recruiting focus is on experienced advisors, the management consultant said firms need to attract more inexperienced advisors. To combat the looming shortage, the industry needs to attract 30,000 to 80,000 net new advisors over the next 10 years, compared with 8,000 net new advisors over the last decade.
“All told, if the productivity gains are realized, the industry will need between 320,000 and 370,000 total advisors to meet demand by 2034,” the report said.
Firms should consider on-campus recruiting, structured internships and rotational programs. U.S. direct brokerages are also ripe with talent, as these firms have trained over 5,000 new advisors in the last five years, McKinsey said. Career changers may provide another source of good talent.
Firms should also look at individuals who have failed out of the major advisor development programs.
“These candidates could excel in a different firm and culture and may have already obtained the requisite licensing and basic training,” the report said.
In addition to recruiting, McKinsey estimates firms will need to increase productivity by 10% to 20% to meet the talent shortage.
“In particular, the industry needs to significantly improve lead generation, teaming and practice management (optimizing skills of team members, increasing specialization and leverage), and the use of technology-enabled by gen AI (a focus on value-add activities and removal of tedious, low-value tasks),” the report said.
For instance, centralizing lead generation can improve advisor capacity by 3% to 4%, reducing the amount of time they spend prospecting. Teaming, specialist support, and practice management can increase productivity by 3% to 6%, while technology improvements and AI can add between 7% and 15% capacity.
If the industry can pull these levers, it would be equivalent to adding 30,000 to 60,000 advisors at 2024 productivity levels.