Due in large part to a growing demand for advisory services driven by the proliferation of sophisticated financial products, the U.S. wealth management industry is experiencing a period of strength and stability. However, threats are on the horizon: the sector could face a shortage of approximately 100,000 advisors by 2034, according to a report by McKinsey & Co.
In its report, the strategic consulting firm suggested that it is necessary to “change the operational model of advisors to increase productivity (through lead generation, teamwork, and an AI- and technology-enabled shift toward value-added activities) and attract new talent to the industry much faster than before.”
The study also warned that, in the long term, hiring veteran advisors is not a solution: there will be around 110,000 advisor retirements, leading to a decline in the total number of advisors by about 0.2% annually over the next decade.
This shortage is approximately—according to the global consulting firm—30% of the 370,000 advisors estimated to be needed in 2034 to meet the growing demand for wealth management in the United States.
Additionally, about 27,000 advisors switch firms or go independent each year, according to the study. The decline in supply and the emergence of private equity investments in advisory firms have already driven up hiring costs, the report added. The study was authored by Jill Zucker, Jimmy Zhao, John Euart, Jonathan Godsall, and Vlad Golyk, representing the views of McKinsey’s Financial Services Practice.
The report breaks down and analyzes the increasing demand for advisory services, driven by the rise in U.S. household wealth and the growing demand and willingness to pay for human advice. It also compares this with the decline in the number of advisors.
“The advisor workforce has grown by only 0.3% annually over the past ten years (…) The number of advisors is expected to decline by around 0.2% annually. Retirements outpace hiring, as advisors are, on average, ten years older than members of similar professions. An estimated 110,000 advisors (38% of the current total), who represent 42% of the industry’s total assets, will retire in the next decade,” the report noted.
The report’s authors believe that if this fundamental supply bottleneck is not resolved, the industry will continue to face a zero-sum competition for advisor talent. “While hiring experienced advisors is crucial to the success of many firms, the industry should also adopt a long-term perspective and develop sustainable strategies to attract more advisors to the sector, help them grow faster, and enable established advisors to be more productive,” they stated.
