If you have a wealth manager you trust or have been meaning to connect with one, you may want to give them a call sooner rather than later—as their skills are about to be increasingly in demand.
The industry could soon face a shortage of more than 100,000 advisors, according to a new report from McKinsey, and that could be bad news for affluent clients who rely on wealth managers for everything from investment and retirement strategies to estate and tax planning.
A combination of rising wealth in the U.S. population and growing demand for human advice, paired with talent recruitment struggles, are powering this industry crisis. But with advancements in artificial intelligence and direct marketing changing the game for wealth management, Vlad Golyk, partner and leader of the North American wealth management practice at McKinsey, makes the argument that it’s a “good time” for the industry to have this problem.
A strong preference for wealth management advice from humans
The wealth of Americans is on the rise across multiple generations. Between 2019 and 2023, the inflation-adjusted wealth of Americans under 40 years old grew by about 80%. McKinsey projects the number of affluent households—defined as those with at least $500,000 in investable assets—will grow at an annual rate of 4% to 5% in the U.S. That’s over six times the projected rate of growth of the overall population.
This will mean hundreds of thousands of individuals looking for support on how to properly manage their money. But, depending on your perspective, this could be taken as good or bad news.
“Advisors are going to become scarce. They're going to be harder to find, which, in some sense, for the ones that are in the industry is good news because it makes them in more demand,” says Robert Korajczyk, professor of finance and co-director of Financial Institutions and Markets Research Center at Northwestern University’s Kellogg School of Management.
It’s natural the industry would look to artificial intelligence as a solution to some of the demand and productivity challenges in wealth management these days. Some Americans have already turned to technology for financial advice and many firms have also embraced it internally. According to a survey from EY in 2023, wealth and asset firms say generative AI will help them with data ingestion, investment operations, client onboarding, marketing, and more.
However, according to Taylor Matthews, co-founder and CEO at Farther—a tech-focused wealth management startup—many institutions have still not adapted technologically to make wealth management more productive.
“The state of technology in the industry is generally atrocious, and younger advisors have higher expectations for what technology should deliver for them,” Matthews says. “It should enhance your client relationships. It should make it easier for you to accomplish your day job, rather than [adding to] the red tape that you have to manage around.”
But, there are indications that clients would still rather trust humans to advise them than turn to AI outright. Affluent households are willing to pay five times the amount to get human advice compared to using a customized digital service like generative AI even when the latter option is cheaper, according to McKinsey research.
“Furthermore, among investors with more than $1 million in investable assets, the share willing to pay a premium of 100 basis points or more grew by 50 percent from 2021 to 2023,” the report added.
A wealth management talent shortage
An estimated 110,000 wealth advisors—38% of today’s workforce wealth advisors—are expected to retire in the next decade, according to McKinsey. However, over the previous 10 years, only 8,000 net new advisors were recruited. To meet rising demands, it is estimated that talent recruitment needs to increase by 30% to 100%—even when considering AI and other technology’s net impact on productivity.
Industries like accounting have faced similar talent dilemmas in recent years, but Golyk says grumblings of this issue are nothing new in wealth management. Solutions so far to boost talent recruitment have been a “zero-sum game,” he adds, as competition for experienced advisors has grown. The consulting firm instead suggests a holistic approach, which should include the enhanced recruitment of inexperienced and experienced hires, a more productive advisor operation model, and better succession solutions to help solve the shortage.
“At a certain point in every advisor's career, their productivity stops increasing,” Golyk adds. “So, there is a further supply constraint that is hidden in the numbers just because of the mix of ages of advisors.”
It is not uncommon for MBA graduates to land in wealth management, but the career tends to not be as attractive as some financial pathways due to its larger sales responsibilities and sometimes lower salaries, says Korajczyk.
“If there's going to be shortages of advisors, then compensation is going to have to change,” Korajczyk suggests. “It's going to have to go up and then maybe the older advisors have to rethink the model.”
Matthews notes that the failure rate in wealth management training programs is “extraordinarily high” because they are geared to be sales-focused, meaning new hires have to earn a big enough book of business to earn the right to stick around.
Instead of having the younger individuals make cold calls to find new clients, having them work with existing clients could make the early years of the career more enticing—both in terms of pay and workload, Korajczyk says. At the same time, some clients may not be as comfortable with a 20- or 30-year-old managing their multi-million dollar assets.
“There are more avenues to find the right path for talent, and the firms that recognize that and place people in the right spots to maximize their skills, would do the best in terms of graduating people for training problems,” Golyk adds.
What a wealth management shortage could mean for you and your money
If you work with a wealth management firm, now is a good time to have a self-assessment, and internally answer some of these questions:
- Are you satisfied with your wealth management services?
- How is your wealth management firm utilizing AI?
- Is your wealth advisor overworked?
- Are they nearing retirement age?
With an industry facing increased demand, but a shortage of talent, it is possible the fees charged by your firm will increase and it could take longer to fit into your advisor’s busy schedule.
You should also recognize it is likely your wealth manager will increase their use of AI technology to enhance their productivity. For those with privacy or safety concerns, it may be a good idea to discuss how involved AI is in managing your money.
The takeaway: This wealth management talent crisis won’t go away overnight
Any basic student of economics will tell you that rising demand but decreasing supply does not bode well. This is the reality the wealth management industry must contend with over the next decade. And while there are a myriad of factors contributing to an impending shortage of advisors, it’s clear that without change, both investors and those still working in the industry will face the consequences.
It remains to be seen exactly how these developments will occur, or at what pace, but firms that do not tackle issues of talent recruitment, talent retention, and productivity—in an era of rapid technological change—will likely be left behind.
“The industry faces, in a way, a great problem, and it has tools it needs to do the right thing, and by doing the right thing, it will not just create a lot of well-paying jobs, but also help Americans better navigate their financial lives,” says Golyk.
More on personal finance:
- Did you receive a higher-than-expected tax bill from the IRS? Here are 3 strategies to bridge the gap
- Americans trust AI more than a CPA to do their taxes, according to new research
- Can AI replace financial advisors? Experts warn against using AI for much besides basic financial advice
