“Physician, heal thyself.” Wealth management – an industry whose raison d’être is to help people plan for the future – has a succession problem. In other words, it's doing a poor job preparing itself for its own future.
Over the next decade, McKinsey estimates the industry will soon experience a shortage of roughly 100,000 advisors. What’s causing the deficit? A variety of factors. The most prominent ones are an aging advisor population, a shortage of qualified replacements and, somewhat counterintuitively, outsized demand for wealth management services.
To be sure, technological advancements, particularly those driven by AI, have helped make advisory firms more efficient. That could help to alleviate some of the pressure and make the problem less acute than some of the most dire forecasts suggest. Yet, while investors say that digital advice has a role to play, most investors place value on working with human advisors.
Of course, nothing about the current predicament should surprise anyone. This issue has received a ton of attention over the years, whether at conferences or in news outlets covering the industry.
So, what explains the lack of progress? To find out, WSR spoke to representatives of three firms that have proactively made succession planning a part of their platform offering: Josh Gerry, CEO of VestGen Wealth Partners; Michael Longley, Chief Growth Officer at Sanctuary Wealth; and Thomas Goodson, President at The AmeriFlex Group.
Here’s what they had to say.
Gerry: Advisors help their clients with retirement planning every day yet often neglect their own. Why? There is a lack of good options and prepared second generation advisors to make them feel comfortable with making these plans. It’s unsurprising that people dedicated to ensuring that their clients have the best solutions for their retirement at their fingertips would not want to settle for “good enough” for their own exit plans.
This presents an exceptional opportunity for forward-thinking firms to invest in the optimal combination of technology and personnel. By doing so, advisors nearing retirement can be assured that they will receive a fair valuation for their practice, ensuring their clients are well served and their legacy remains intact.
However, this opportunity came at an extremely high cost before critical advancements in AI-enabled technology. The industry finds itself at the intersection of several major trends that will remake the face of wealth management. As trillions of dollars transfer to younger investors, there is a critical shortage of advisors to serve a more demanding client population. Firms that use well-trained and highly focused advisors supported by agentic AI solutions will be able to help first generation advisors leave the industry and serve more clients than ever before at a lower cost without sacrificing service.
We launched our firm with this in mind in late 2024, and our message has been extremely well received by first generation advisors. The solution looks different than our past.
Longley: It’s no secret that the wealth management industry has a demographics problem. The statistics have been widely discussed and remain sobering. Cerulli estimates that 109,000 financial advisors will retire between 2024 and 2034, while new advisors joining the ranks have a success rate of only 28%. McKinsey estimates the number of advised relationships will grow between 28% and 34% during that same timeframe.
The increasing number of advisors leaving the W-2 channel – and its structured exit process – for the 1099 model exacerbates the already troubling succession crisis, as independent next-gen advisors often struggle with financing skyrocketing practice purchase prices.
What are we doing about it at the industry level? Not enough.
At Sanctuary Wealth, we’re meeting this challenge through our proprietary Enterprise Partner Program, which includes a curriculum that educates and prepares our Partner Firms to move beyond running their own business to building an enterprise through targeted M&A activities. This program is complemented by our Strategic Capital Partnership program, which provides members of our network and other elite wealth management firms a pathway to raise strategic capital to expand their businesses.
These programs help both retiring advisors capitalize on their assets and enable streamlined inorganic growth for Partner Firms.
Goodson: The advisors who assisted baby boomers in accumulating wealth over the past 40 years are also nearing retirement. Morningstar estimates that roughly 4 million people will turn 65 every year through the end of this decade.
Therein lies the problem: Consumers understand that their advisors want to retire, but they don’t want their financial plan to retire at the same time. A critical shift occurs at retirement for most investors as they transition from accumulators to spenders. Companies that can reengineer their human resources to address planning needs during the decumulation process and answer transitional questions during this period are in the best position to address the operational shift that will occur.
Advisors who want to retire and help their retiring clients need to pass the baton to “transitional wealth planners” who can address these specific types of questions. We launched the Advisor Transition Network, SuccessionFlex and other programs to address the needs of retiring advisors and help them find the right bridge toward retirement, ensuring their legacy remains intact and their clients are well served for years to come.
Michael Madden, Contributing Editor and Research Analyst at Wealth Solutions Report, can be reached at michael.madden@wealthsolutionsreport.com.
