The Cerulli report does not attempt to define a typical SEC-registered RIA principal, but they did find that the average advisor principal employs eight employees and personally manages accounts. See: Three signs RIA firms are adapting to the brave new world. The restless Invent. The provision of investment advice is pretty clearly not a profession like that of physicians, attorneys, or engineers.
Plumbers are not plumbing supply salespersons. The same is generally true of the other trades. There are clearly a set of investment advisers who are in the business of offering investment advice and management, but there are many, many more who are in the product sales business and use the IA registration as a revenue enhancer and front.
I really wish there was an organization with the kind of discipline and authority held by the state bar associations, or medical boards. That would mean true self-regulatory organizations in each state with authority under the law to license and discipline. There are technologies here and in Europe which are driven off of investment policy that are electronically geared to high level individualized portfolio construction and the ongoing monitoring in a fiduciary capacity of an unlimited number of individualized accounts.
With scale these technologies the authenticated expert systems just add a few basis points in cost yet are totally transparent in terms of cost, performance and risk. Because this technology literally changes the role of the broker, the head count od advisors will exponentially grow. Who in fact will want to be a broker? Thus, this inflection point streamlines cost, greatly enhances the counsel of advisors and enables all advisors to achieve professional standing in advisory services.
This is a material departure from commission brokerage, it democratizes intellectual capital required by statute. Toggle navigation. Related Moves. Oleg Tishkevich builds instant McKinsey-killer in RIA consulting by offering gigs and equity to six solo stars, but good luck managing egos and economics, says someone who's been there The restless Invent. Share your thoughts and opinions with the author or other readers.
SCW Stephen Winks. But only those properly registered 65 or 66 are legally allowed to specifically and publicly hold themselves out and offer ongoing investment supervisory services. I've been in the investment industry for over 40 years. Data on the critical and distinctive skills necessary for Personal financial advisors from the Bureau of Labor Statistics.
Personal financial advisors need many skills, but most especially Reading Comprehension, Active Listening, and Writing. The revealed comparative advantage RCA shows that Personal financial advisors need more than the average amount of Management of Financial Resources, Mathematics, and Operations Analysis.
The year national workforce is projected to grow 3. This occupation is expected to grow more than the national average. This line chart shows the projected year growth in the number of jobs for Personal Financial Advisors. This profession is expected to grow more than than 3. Add Comparison. Employment Information on the businesses and industries that employ Personal financial advisors and on wages and locations for those in the field.
View Data. All right, maybe a hyphenated word. Because as much as we talk about the challenges and risks of what technology might do to the career of a financial advisor someday, technology is already doing that to a lot of other industries now, and it's driving people to change careers. And when you're trying to decide what career to change to, the average lead advisor still earns almost three times the median household income in the US , that makes it a pretty darn appealing career to transition into.
And it's not just about career-changers coming from unrelated industries, also career-changers coming from our more directly affiliated professionals that tie to financial services: lawyers and accountants. Because while we're debating whether robo-advisors might commoditize parts of investment management, we already know that tools like TurboTax have commoditized a lot of the accounting business, particularly when it comes to tax preparation work.
And so as technology squeeze a lot of CPAs in the tax prep business, it pushes them towards becoming a financial advisor with more upside potential. And the same is true for attorneys, especially estate planning attorneys. The recent estimate from Heckerling Institute was that there may be no more than 2, estates per year across the entire U. Two thousand estates a year. There are a lot more than 2, estate planning attorneys out there and most of them need more than 1 client per year to make a living.
So where are they going to go when estate planning is in decline and they can't even go down market to do more basic estate planning documents because technology companies like LegalZoom are taking over the low end of the market? They become financial advisors instead. Now, unfortunately, our industry isn't great to career-changers. It can be tough to satisfy CFP Board's experience requirement when you're making the transition.
While the income potential for financial planners is great, in the near term, it often requires a big step backwards in income for a career-changer to take two steps forward, which isn't always feasible with kids and college and mortgages. And it's tough just to ramp up to be a financial advisor on a part-time basis if that's how you're trying transition. But still, the key point remains that while we talk about the risk that technology will squeeze out financial advisors, right now it's squeezing out even more people in other industries and into being a financial advisor, especially given what is still an incredibly well above average income potential.
But the last reason that I think we should still be bullish on the job opportunities for financial advisors is technology. The dominant theme in the media for the past five years has been whether or how much robo-advisors would knock out or replace human advisors by automating the tasks we do for our clients and reducing how many advisors we need.
But technology often plays out in some unexpected ways. And I think a great case in point example here is what happened to banks and teller jobs when the automated teller machine or the ATM showed up, in theory, to replace all the human bank tellers.
When the ATMs first started showing up in the s and '80s, the prediction was that soon banks would completely replace all the human tellers with technology tellers and that nearly , human teller jobs would be eliminated. And while in practice banks really did roll out almost half a million ATMs in the s and s to replace the humans, by the s, the number of human teller jobs was up to , on top of all of the ATMs.
We went from half a million teller jobs to more than 1 million in combined teller and technology teller jobs. In other words, the net result of all the increase in the technology to replace the humans was an increase in the technology and the humans. And the reason, as some follow-up economic research showed, was that the introduction of the ATM brought down the cost of banking. It made it more efficient. So much so that banks opened new branches in new communities they didn't serve in the past.
And so while the number of tellers in each bank branch did go down because they were partially replaced by technology, the tellers were just deployed to new branches with more new tellers hired on top because the branch was now profitable to run with a combination of humans and technology in a way that wasn't possible with humans alone.
And this is the exact kind of path that I see playing out with technology amongst financial advisors as well. Because when most financial advisors can only work with about clients in deep advice relationships , and in the late stage of our careers we often winnow it down to just profitably serving our 50 best clients , the reality is that even , financial advisors at clients each is only serving 30 million households.
There are almost million households in the US , which means there are barely enough of us to serve one-fourth of all U.
And as we mentioned earlier, half of those financial advisors fully admit they're not actually giving any financial planning advice. Just as ATMs brought down the cost of banking and allowed banks to expand into more communities they hadn't previously serviced and hired more human tellers to do it. And on top of that, as technology continues to put pressure on the financial advisor value proposition, it's driving more advisors into actually giving advice. Cerulli's own study that reported barely half of advisors were doing financial planning was at least up from only one-third of advisors saying they were doing financial planning four years ago.
Because even as the number of financial advisors in total is roughly flat, the number of real financial advisors giving advice is rapidly growing within that number. That's why CFP Board is seeing record highs in the number of new people sitting for the CFP exam in recent years , and the number of CFP certificants is up nearly 25, since before the financial crisis, even though the number of financial advisors has declined by 25, since then.
Simply put, if you really want to measure whether the opportunity for financial advisors is growing, the better leading indicator is not looking at the headcount of total financial advisors, many of whom aren't actually in the business of advice in the first place, but the growth of CFP certificants. Which is not only growing but growing faster and accelerating as technology comes and makes financial planning more efficient, reduces the cost of overhead on giving advice, but it doesn't eliminate human advisor jobs, it eliminates back-office jobs and overhead expenses that make it possible to hire more human advisors instead.
The bottom line, though, is just to recognize that even with this looming dual threat that almost half of advisors are over 55 and the rise of robo-advisor technology, that there's good reason to be incredibly bullish about financial advisor job opportunities and the size of the financial advisor marketplace.
Not only because the projected wave of advisors retiring just isn't materializing because advisors don't have to retire just because they're something, the retirement wave may still be plus years out, but just as we saw with ATMs, technology, including robo-advisor tools, aren't a threat to financial advisors, they're back-office efficiencies that bring down the cost of advice, expand the market we serve, and increase the demands and hiring potential for advisors.
Which I think will increasingly fill not only from the rapid growth of undergraduate financial planning programs, thanks to CFP Board's great efforts , but the squeeze that everything from technology to tax law changes are causing in other professions, driving more of them into financial planning as career-changers. And if you want the best perspective on the opportunity in whether the market for financial planning advice is growing in the aggregate, the bottom line is we shouldn't be looking at the total headcount of advisors, but the total headcount of CFP certificants.
It's the best leading indicator of the market for financial planning advice, and it has grown unabated for the past 20 years and is accelerating now as the CFP marks become the accepted standard and technology forces all of us as advisors and "advisors" to step up and deliver real advice.
So I hope that helps a little as some food for thought. This is Office Hours with Michael Kitces. Thanks for joining us, everyone, and have a great day. General Inquiries: Questions Kitces. Members Assistance: Members Kitces.
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