Why is advisor attrition a major problem in wealth management and how to reduce churn
Staff leaving is never easy on any business, but advisor attrition can create significant impacts on wealth management firms that not only sees them lose expert talent but potentially lose billions in revenue.
Advisor attrition refers to the rate of financial advisors leaving a firm, whether it is for retirement or moving to a competitor. Given the close relationships advisors build with clients, the relationship a customer has with a firm can be heavily impacted when an advisor leaves. This impact could be the customer feeling upset about having to switch to a new advisor within the firm or even following the advisor to their new firm. A recent study from Fligoo stated that advisor attrition rates surged by 7.5% in 2023 and accounted for over $100bn in assets under management being transferred in 90 days.
Advisor attrition creates a number of challenges for wealth managers. Simon Coll, Director, Wealth Management at Arbuthnot Latham, said, “Advisor attrition is a significant challenge for wealth management firms because it leads to a loss of both talent and clients. When experienced advisors leave, they often take their clients with them, resulting in lost assets and revenue. Additionally, recruiting and training new advisors is costly and time-consuming, while high turnover rates can harm the firm’s reputation and its ability to attract top talent.”
The advisor is often the main point of contact a client has with a wealth management firm. These relationships can become particularly deep, discussing personal financial situations and goals over multiple years. This leads to a deep level of trust in the advisor. If that advisor moves to another firm, the client will either need to move their assets to follow or start to build a relationship with their new advisor. This can have a negative impact on the customer’s experience, particularly if there is a high churn rate and they are consistently being connected to new advisors. A report from Nitrogen Wealth recently claimed that it costs five times more to acquire new clients than to keep current ones.
Fincite’s founder and Co-CEO, Ralf Heim, also highlighted the loss of client relationships as a major problem for firms. He said, “The loss of client relationships and the high replacement and advisor onboarding costs make advisor attrition one of the top three reasons Private Banks choose our Software.
“Why? A good software experience for advisors and customers, high degree of process automation and thus freed time might prevent advisor attrition. And if Advisor attrition still happens, the customers have a relationship to the Advice Software – not just the Advisor.
“Recently a bank executive called us, because of a customer who churned through his advisors, and asked us if he can reactivate the account on our software. This shows the importance of software experience within advisory relationships.”
“I think there is a trend within larger groups to reduce the dependency on the advisor and the advisor teams and try to centralize control. This is also driven by PE moving into the industry to consolidate and invest in tech.”
On the other end of this, there is also a fear that advisors are being given less freedom. Fredrik Davéus, CEO and co-founder of Kidbrooke, said, “I think there is a trend within larger groups to reduce the dependency on the advisor and the advisor teams and trying to centralize control. This is also driven by PE moving into the industry to consolidate and invest in tech.
“More control and more technology, often enabled by PE players investing and consolidating the industry means it is possible to reduce the freedom of the advisors in their role. This I think may contribute to making the job a lot different from the past and then it attracts a different kind of people.”
What causes attrition?
There are many causes for advisor attrition. Coll explained, “Several factors contribute to advisor attrition, including a lack of operational efficiency, insufficient career progression, and inadequate compensation. Many advisors also struggle with work-life balance due to the demanding nature of the job. Other causes include mismatched cultural fit and limited opportunities for recognition or growth within the firm, which can lead to burnout or dissatisfaction.”
Diving into some of those factors a little more, keeping advisors appears to be paramount in preventing them from leaving to join a competitor. For instance, one of the factors Coll pointed to related to the advice construction process. If an advisor feels their firm’s advice execution process lacks operational efficiency, this can lead to them spending more time on manual admin tasks, rather than focusing on supporting clients. Similarly, failing to provide the advisor with opportunities can lead to dissatisfaction with their role. “A steady flow of prospects is an advisor’s holy grail. Creating a model that consistently provides opportunities to engage clients allows advisors to focus on what they do best: helping clients achieve their financial goals.”
Another contributing factor to attrition includes a lack of competitive compensation packages, which can leave an advisor feeling undervalued or underpaid, especially if a rival firm can boast better rewards. Other issues can arise from a burnout of advisors due to poor work-life balances, lack of alignment between an advisor’s values and the firm’s culture, as well as a lack of clear career progression, which is a significant issue for younger advisors looking to advance their career.
One final area that can lead to an advisor’s dissatisfaction relates to their manager. If there is an issue with the manager, an advisor might look to move, which is why Coll urges firms to continuously work to develop managers and how they coach and add value to staff.
One of the common themes about advisor attrition boils down to the use of technology. Arguably the biggest boon of technology for advisors is the ability to automate mundane manual admin tasks. This not only helps them reduce the tedious aspects of their work but allows them to focus on the client relationship and providing the best support.
Heim explained, “Like most people, customers leave their company because of lack of perspective and dissatisfaction with their leadership. But behind this reason, technology is often a top reason. Good technology impacts the customer satisfaction, the effort the advisor has with handling processes and – last but not least – the way they can advise.”
How to prevent attrition
It is in the best interest for wealth management firms to try to curb attrition, but it is not an easy task. Firms need to be more proactive and take steps to prevent advisors wanting to leave.
Davéus stated that combating attrition is a ‘tough nut to crack’, but technology that supports the advisor is an important part of keeping employees happy. “Having tech empowering the advisor I think is important and also reduces a lot of “boring tasks” which come with old and outdated tech.”
Heim shared a similar sentiment that keeping advisors happy is the best way to stop them seeking other opportunities. “Beyond offering great software and strong leadership, advisor satisfaction is influenced by several factors. These include the firm’s approach and philosophy on providing advice, the breadth of its product offerings, its investment strategy, the expertise network within the organization, the brand perception and the quality of back-office support, the time advisors can dedicate to their clients, and the book of business provided by the institution.”
There are even tools available, like Fligoo, that can help firms predict the likelihood of an advisor leaving. The company’s technology assesses an advisor’s output to build a risk score that indicates whether a firm should be concerned about them leaving. These indicators could be the trading activity, with an active advisor consistently maintaining higher levels of trading activity, while those at risk of leaving are more likely to show a noticeable decline. Or another indicator is the reduction in managed accounts or their tenure.
Coll offered a long list of ways that firms can try to prevent their advisors from leaving. At the top of this list is hiring deliberately. “Whilst technical competence is a given, cultural fit trumps everything. Taking time for current team members to meet and co-assess cultural fit, both ways, is time well spent. High quality colleagues within any team can fuel learning, fun and often outrank other perceived benefits.”
Next, Coll encouraged firms to understand the reason why each advisor joins their firm and why they stay. This will be vital in developing a relationship and ensuring they can work together to stay motivated and happy. Tying into this, firms should be looking to acknowledge the hard work of their advisors. “Saying thank you, whether authentically, formally, or informally, can have a very positive impact.”
Other ways to retain staff include regular staff surveys, regular reviews of compensation packages to remain competitive, fostering a positive, inclusive, aligned and diverse work environment that makes employees feel valued, work-life balance initiatives that support flexible hours, remote working options and wellness programs to reduce burnout, implementing structured career development plans, and providing advisors with the opportunity to tackle new challenges and develop new skills.
Coll added, “To reduce advisor attrition, firms should focus on fostering a supportive and rewarding environment. This includes offering competitive compensation, providing clear career advancement opportunities, and promoting a positive work-life balance. Additionally, creating a strong corporate culture and recognising advisors’ contributions through formal and informal recognition can go a long way in improving retention and job satisfaction. By addressing these areas, wealth management firms can create a more supportive and attractive environment for their advisors, ultimately reducing attrition rates.”
Advice to firms
To conclude, Heim and Davéus both offered some advice to wealth management firms that are looking to tackle their attrition rates.
Davéus said, “Invest wisely in tech and have a clear strategy for what kind of advisor role you are creating. If you go toward a more centralized setup with a lot of automation and control made possible by tech, then you need to understand what effect this has on the advisors and the attractiveness of the role.”
In a similar tone, Heim concluded, “Firms should focus on creating a supportive environment for advisors by providing cutting-edge tools, streamlined back-office processes, and a robust network of expertise. Prioritize building a strong client book, offering clear career growth opportunities, and fostering a culture centered on innovation and advisor empowerment. These efforts will not only reduce attrition but also drive long-term success for both advisors and the firm.”
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