Financial advisers are getting old. What happens when they retire?
With the average age of a financial adviser rapidly approaching 60, the industry is preparing for a reckoning as they frantically attempt to replace those departing.
Recruiting financial advisers has always been tough, as it isn’t exactly the most glamorous job, but it seems to be getting even tougher. Less and less young people are entering the profession, while the bulk of financial advisers are starting to prepare for retirement.
Only 26 per cent of financial advisers are under 40, with the average financial adviser sitting in their late 50s. In contrast, more than half of doctors are under 40.
Clients are feeling it. One in five people who use financial advisers said they were “very concerned” about the prospect of them retiring, with a further 26 per cent saying they were “quite concerned”, according to a recent survey from Investec Wealth & Investment.
21 per cent of people believe their financial planner will retire within the next two years, with 41 per cent thinking it will happen within the next five years.
Previous surveys show that half of all financial advisers are planning to retire within the next five years, with the average planned age of retirement sitting at just 52.
The high pay that comes with the job enables financial advisers to retire early, but there just isn’t enough people to replace them, as the number of young financial advisers has been dropping rapidly.
More must be done to make [financial advice] an attractive career for new talent.
Simon Taylor, head of strategic partnerships at Investec W&I.
Under 25s registering as a financial adviser have more than halved since 2022, while those between 25-29 have fallen by 18 per cent.
In contrast, the number of financial advisers over 60 has jumped by 29 per cent, as the industry struggles to replace those who want to retire.
The industry clearly realises it needs to make a concentrated effort to recruit more young people, but so far hasn’t exactly been successful.
“As the sector is set to lose so many of its most experienced workforce, more must be done to make it an attractive career for new talent – both to the younger generation just starting out and those looking to switch from other professions,” said Simon Taylor, head of strategic partnerships at Investec W&I.
Will clients stay when their financial adviser retires?
Even beyond the problem of finding enough advisers to replace those retiring, other issues will start to rear their head.
On the retirement of their adviser, only 61 per cent of clients said they would retain the same firm and use another professional within the company.
Meanwhile, 31 per cent said they would find another adviser for themselves, and eight per cent said they would stop using a financial adviser altogether.
This would represent a seismic shift for advice firms: Over a third of their customer base could disappear overnight, while even those who stick around might end up departing due to the under-supply of replacements.
“[Clients] are concerned about losing the personal attention and expertise they have come to rely on and are worried that any change in personnel could disrupt the continuity of their investment strategies that have been put in place,” explained Nick Vaill, senior investment director at Investec W&I.
This could lead to the giants of the financial planning industry, like St James’s Place and Quilter, losing billions in assets rapidly, especially with recent Consumer Duty rules leading to the former scrapping its exit fees.
However, Vaill was keen to note that “most financial advisory organisations will have succession plans in place to ensure the smooth transition of a client’s financial assets to another qualified professional”.