The Retirement Crisis for Financial Advisors


Financial advisors are facing a pressing issue as a significant number of them are preparing to retire. This retiring wave introduces an additional challenge to the already complicated process of finding a trustworthy professional to handle your finances.

According to a report from Cerulli Associates, a respected research and consulting firm, over the next decade, more than 109,000 advisors plan to retire, accounting for nearly 38% of the industry’s workforce. Unfortunately, there aren’t enough new advisors entering the field to adequately replace those leaving. Cerulli explains that many rookies tend to leave the profession before reaching advanced levels, exacerbating the shortage.

Coincidentally, this brain drain comes at a time when proposed regulations seek to address conflicts of interest within the industry. The U.S. Department of Labor is in the final stages of a proposal that aims to elevate standards for advisors providing guidance on 401(k) rollovers at retirement. The objective is to minimize conflicted advice that could potentially erode workers’ hard-earned savings.

If you find yourself in need of an advisor, it is crucial to interview multiple candidates to ensure you select the right fit. Additionally, you can utilize Finra’s BrokerCheck tool to conduct research on prospective advisors’ registration and disciplinary status. To help guide your decision-making process, here are some essential questions to ask:

Is Your Advisor a True Fiduciary?

Fiduciary advice is widely recognized as the gold standard within the financial planning industry; however, there may be some gray areas. A fiduciary is legally bound to prioritize their clients’ interests above their own. However, this standard may not apply to all financial products sold by advisors whose revenue mix includes both fees and commissions. To gauge a prospective advisor’s commitment to being a fiduciary, consider asking the following question: “Would you act as a fiduciary in all our interactions?” If the answer is yes, it is advisable to request a signed promise confirming their adherence to this principle. Knut Rostad, co-founder and president of the Institute for the Fiduciary Standard, a nonprofit advocacy organization, recommends this screening approach.

The Importance of Fiduciary Duty in Retirement Advice

The Biden administration has proposed a significant change that would hold all advisors accountable to the fiduciary duty when providing retirement advice or selling retirement products. This proposal marks the government’s third attempt in over a decade to extend fiduciary protections outlined in Erisa, a 1974 law that governs workplace benefits, to a larger number of advisors. Although industry opponents are likely to challenge this latest proposal in court, investors can still prioritize fiduciary advice on their own terms.

The Value of Knowing Your Advisor’s Succession Plan

As more and more advisors are approaching retirement, it is essential to inquire about their plans for the future. Andrew Blake, associate director of wealth management at Cerulli, emphasizes the importance of this question: “What is your plan down the road?” Asking with the intention of establishing a long-lasting relationship with the firm can help alleviate any potential awkwardness. Independent registered investment advisory firms are particularly impacted by this concern. According to a Cerulli survey, 14% of advisors planning for retirement intend to sell their practice externally, 26% have identified a successor within their practice, and another 26% currently have no formal plan in place.

Creating Clear Objectives for the Advisor-Client Relationship

At the outset of an advisor-client relationship, it is crucial to establish clear goals and expectations. William Huston, founder and chief investment officer of Bay Street Capital Holdings in Fremont, Calif., notes that his firm typically works with clients experiencing significant life changes. These changes may include inheriting money and wanting to move away from their parents’ advisor or starting a job in the technology sector and needing guidance on managing a new compensation package.

By prioritizing fiduciary duty, understanding your advisor’s succession plan, and setting clear goals, investors can make informed decisions that align with their best interests in the realm of retirement planning.

Financial Advisors and Equity Compensation

When seeking financial advice, it is crucial to find an advisor who understands your specific needs. One way to determine this is by asking how many clients they have helped in a similar position. Despite visiting a financial advisor, it does not guarantee that they comprehend equity compensation, especially the intricate combination of stock and options prevalent in the tech industry.

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