People come and people go. But financial advisory firms are seeing quite a bit more of the latter these days.
Last year, about 7% of FINRA-registered representatives left the industry while only 6% entered the space, according to a FINRA snapshot report. As a result, the total number of FINRA-registered representatives continued to fall for the fifth year in a row, with 612,457 in 2021, down from 617,531 in 2020.
More FINRA-registered firms closed shop than opened as well. In 2021, 150 FINRA-registered firms closed while 109 new firms emerged, ending 2021 with 3,394 total firms, a 1.1% drop from 3,435 in 2020, according to the report.
“It’s a very difficult and stressful time to be a financial advisor when markets are whipsawing and gyrating,” said Mark Elzweig, president at Mark Elzweig Company, a consultancy for financial advisors.
As financial markets continue to be shaken by fears of rising inflation and pressure from the Fed’s rate hikes, it is harder to find investment opportunities that will go up in the short term, Elzweig said. For advisors, it means spending extra time working with clients to find good investment vehicles and focusing attention on long-term goals.
If the market continues to dip, it will prompt more advisors to accelerate retirement plans, Elzweig said.
A Cerull report estimates that nearly 103,000 advisors will retire in the next decade, representing nearly 40% of the current industry advisor headcount. More than 26,000 advisors — or 26% of the total — who advise on $1.8 trillion in assets have no succession plans as the industry is failing to generate enough new talent to replace experienced advisors who are transitioning into retirement.
“Young people today want to work for a hot tech company and are not interested as a group in becoming financial advisors,” Elzweig said. “It’s a very lengthy apprenticeship period for someone to establish a practice, and the success rate of trainees is relatively low.”
For those who have stayed, people tend to move from big wirehouses to smaller independent firms. Representatives in large firms with more than 500 registered representatives dropped 1.1% to 64,099 in 2021, while at firms with 150 or fewer representatives, the number increased 0.7% to 513,923, according to the report.
For wirehouses, it is an expensive business with a lot of compliance regulations to adhere to, Elzweig said. Total expenses for FINRA-registered firms in 2021 rose to $306.8 billion, up 8% from $284.7 billion in 2020.
To cut costs, big-name brokerages are putting more emphasis on sales per advisor than on headcount. The effort is supported by wirehouses that are betting on technology to make their advisors more productive, which drove their revenue up 10% to $398.7 billion in 2021.