Heavy turnover leaves advisory firms in a vicious cycle of allocating resources to recruit and onboard new advisors, only to lose them before they generate enough value for the firm to recover its investment. And given that McKinsey projects a shortage of more than 100,000 financial advisors over the next decade, it’s never been more important for advisory firms to succeed at attracting and retaining talent.
While attracting new talent and managing turnover are often thought of separately, the two are closely related because not all cohorts of potential new advisors targeted by advisory firms have identical turnover rates. In fact, our Kitces Research data shows new college graduates – a cohort traditionally targeted in recruiting efforts – have far higher turnover rates than those transitioning into financial planning later in their careers. This is for several reasons, including that career changers bring with them both soft skills (e.g., meeting deadlines and managing multiple projects) and transferable professional skills (e.g., analytical experience and managing client relationships) that can help them be – and feel – more effective on the job. These experiences, along with the professional networks developed through prior roles that can serve as an initial source of business, can also better position career changers to grow faster and generate revenue and income more quickly than new advisors fresh out of college.
The end result is an “upfront-cost” versus “attrition-cost” trade-off between career changers and new graduates: Career changers require greater investment to recruit (because they can enter financial planning from virtually any other industry and at any age, making them much more widely dispersed and difficult to target in a scalable way) and are also more expensive to employ, earning 20%–40% higher salaries in their first five years in the profession than new graduates. What firms get from these investments in career changers, though, is 2–5X lower turnover rates compared with new graduates. Which means firms looking to minimize advisor turnover should strongly consider whether the benefits of hiring career changers who are more likely to stick around are worth the higher costs of recruiting and employing them compared with traditional cohorts like new graduates.
