Industry must address adviser shortage

Has anyone noticed that the financial advisory industry is shrinking? Last week, InvestmentNews‘ senior editor, Dan Jamieson, reported that as the number of consumers who need and want financial advice has grown, the number of professionals offering advice has declined.

Over the past two years, adviser head count in all delivery channels has fallen more than 4%, according to a study by Boston-based Cerulli Associates Inc. Even more disturbing, baby boomers headed for retirement with what is expected to be $5 trillion in assets will need 50,000 additional advisers to help them, according to one analyst.

At the moment, however, no one knows where those advisers will come from, let alone how many newcomers will be needed to replace the current adviser population, which is aging and entering retirement.

What is going on, and what can be done?

For one thing, the dearth of new advisers is a clear sign that the old recruitment and training model has seen its day.

That model, by the way, was the “let Merrill do it” approach, in which wirehouses such as Merrill Lynch & Co. Inc. of New York gave vast numbers of recruits a dollop of training, a phone book and threw them into the pool.

Those who didn’t drown got more support and training, and eventually became knowledgeable brokers. A percentage of successful brokers made the next transition and became the nucleus of the modern advice business.

The conveyor belt that has moved trainees to brokers and brokers to advisers — wirehouse employees to independent entrepreneurs — has rusted.

Wirehouses no longer can afford to be the industry’s boot camp. Neither can the independent channel, which faces its own challenges because it isn’t equipped to recruit advisers or offer training programs, as Mr. Jamieson reported in his story last week.

Because advisers generally enjoy high income, the forces of supply and demand are likely to work in favor of attracting sufficient numbers of talented advisers to meet investor needs. But impediments in the form of outdated adviser training, recruitment and compensation models stand in the way; these must be addressed.

To do that, we strongly suggest the creation of a financial advice task force to study the problem and propose solutions.

While they disagree on many issues, the major financial services industry trade groups — the American Bankers Association, the In-vestment Company Institute, the Financial Planning Association, the Financial Services Institute Inc., the National Association of Personal Financial Advisors and the Securities Industry and Financial Markets Association, among others — should be involved in the task force.

Because the business success of the members of these groups to varying degrees rests on the delivery of sound financial advice to individual investors, all the organizations have a stake in increasing the number of qualified financial advisers.

What’s more, they have an obligation to do so.

For years, most financial intermediaries have promoted the value of advice. Their message to investors, in one form or another, has been, “Don’t go it alone.”

Now with defined contribution plans and individual retirement accounts the primary retirement vehicles for most Americans, advice is needed more than ever.

Individuals are ill-equipped to make the necessary financial decisions about their retirement all by themselves.

They know it, and the financial advisory business knows it.

This isn’t the time for the financial advice industry to shrug its shoulders and walk away; it is the time to join together to come up with a plan that will allow advice providers to act boldly and recruit the professionals that the country needs.

After all, investors are depending on sound fiscal advice.