Weekend Reading For Financial Planners (February 15–16)

Client Satisfaction With Advisors Remains High, Though Danger Bubbles Beneath The Surface: Survey

(John Manganaro | ThinkAdvisor)

Financial advisors tend to enjoy high client retention rates, which, on an industry-wide basis, tend to hover well above 90%. Nonetheless, given that it tends to take less time to serve ongoing clients than to acquire and onboard new clients, maintaining high client satisfaction (and retention) can contribute to a firm's health. And while a recent survey suggests that clients remain largely satisfied with their advisors, a sizable number would consider switching to a new advisor, particularly if they experience a major life change.

According to Orion's 2025 Investor Survey (which surveyed 1,000 financial advisor clients with at least $50,000 in investible assets [with 30% of respondents having $1 million or more]), 95% of respondents reported being satisfied with their advisor, including 63% who said they were very satisfied. In addition, 95% of those surveyed agreed that their advisor works in their best interests (with 67% agreeing strongly). Notably, though, there were generational differences when it came to advisor satisfaction, with Baby Boomers (70%) being more likely to be very satisfied with their advisor compared to Gen Xers (63%) and Millennials (55%).

The survey also explored the factors that would lead clients to change their advisor, finding that 47% of respondents would be somewhat likely to switch advisors if they were to receive an inheritance of more than $1 million (with 10% saying they would be extremely likely to do so, 14% very likely, and 23% somewhat likely). Interestingly, this percentage was lower for smaller inheritances with 38% of those receiving a hypothetical inheritance between $500,000 and $1 million and 27% of those receiving an inheritance of less than $500,000 indicating that they would be somewhat likely to switch advisors in these scenarios, suggesting that some clients feel their current advisors might not be able to handle the planning issues (e.g., tax planning) that come with a large windfall (and an increase in their net worth). In addition, life transitions are also potential inflection points in the advisor-client relationship. For instance, the survey highlighted divorce (with 28% of respondents saying they would be at least somewhat likely to switch advisors) and the death of a spouse or partner (26%) as potential catalysts for changing advisors.

In the end, while advisory firms might be satisfied with their current client retention levels, this survey suggests that proactive action could help keep these relationships sticky even if a client's life situation changes, whether it is in demonstrating the firm's ability to meet the client's needs as their wealth changes (e.g., advanced tax and estate planning) or in ensuring that both members of client couples receive a high level of attention and service from their advisor (to encourage the clients to remain with the firm in the case of divorce or death of one partner)!

Industry Facing A Shortage Of 100,000 Advisors By 2034 As Consumer Demand Is Projected To Increase: Study

(Diana Britton | WealthManagement)

Thanks to a range of factors, from improved technology to new service models, the financial advice industry has been able to help an increasing number of consumers live their best lives. However, given this demand (and the expected retirements of a sizable chunk of the advisor population), coupled with the fact that consumer demand for human financial advisors has been on the rise (despite the rise of more self-directed platforms for consumers), the industry could face a shortage of financial advisors in the years ahead, potentially limiting the availability of high-quality, human-provided financial advice.

According to a study by consulting firm McKinsey & Company, while fee-based advisory revenues have grown significantly during the past decade (rising to $260 billion in 2024 from $150 billion in 2015), the financial advice industry could face a shortage of approximately 100,000 advisors in 2034, due in part to a combination of increasing consumer demand (spurred by both increased wealth and willingness to pay for advice) and the retirements of current advisors (with 110,000 advisors, representing 42% of industry assets, expecting to retire in the next decade).

To remain healthy in the years ahead, the study suggests that firms look to both ways to enhance advisor productivity (perhaps by 10% to 20%) and new recruiting practices. Productivity gains could come from incorporating technology improvements and artificial intelligence (adding 7% to 15% capacity to advisors) as well as by centralizing lead generation (which could improve advisor capacity by 3% to 4% by reducing the time spent prospecting), according to the study. With regard to recruiting, the report notes that while many firms focus on recruiting experienced advisors, casting a wider net could help them better fill the expected shortfall, perhaps by considering individuals who 'failed out' of sales-based advisor development programs at national firms (who might be better fits for a planning-based firm), offering structured internships (to attract undergraduate students), and considering career changers (who can offer skills gained in their previous jobs).

In sum, while headlines about an anticipated advisor shortage might seem worrying, this trend is not just a function of the average age of current retirees… it's also the result of increased consumer demand for human financial advice (a good news story for the industry!). Nevertheless, the study also suggests that firms that are proactive in hiring (perhaps seeking out new talent before experienced advisors retire) and finding ways to boost advisor productivity could be best equipped to future-proof themselves for the expected need for more advisors across the industry in the years ahead!

Charles Schwab To Raise Fees On Advisor Referral Business

(Ian Wenik | Citywire RIA)

While many financial advisory firms pride themselves on the quality of service they provide their clients, doing so requires getting clients in the door in the first place. Which can lead advisors to spend time and hard dollars on one (or more) marketing tactics to attract new clients, with some firms (particularly newer firms whose owners have time to do so as they build their client base) choosing more time-intensive tactics and others (especially larger firms trying to scale up more quickly) choosing tactics that cost more money but require less time (which can be spent on serving current clients).

One tactic in this latter bucket is the use of custodial referral programs (e.g., Charles Schwab's Schwab Advisor Network and Fidelity's Wealth Advisor Services), by which a custodian directly refers clients to a firm participating in the program (as even though most platforms have now built their own in-house wealth management offerings, higher-dollar clients with greater complexity are often still referred out to external RIAs in the custodian's network that specialized in such clients). These referrals come at a price, though, and unlike other advisor lead generation programs where a firm might pay a flat fee for each referral, the custodial programs typically charge the firm a perpetual basis-point fee on each referral that becomes a client.

While some advisors might bristle at paying this type of indefinite revenue-sharing fee (given that a 0.25% fee would represent a quarter of a 1% fee that an advisor might charge their client), in practice there is such strong demand for this service (especially amongst larger firms that are trying to maintain or accelerate their growth rates and have dollars to reinvest into marketing and lead generation) that Schwab has said it plans to enact a 5% fee increase for this service later on this year. Notably, the 5% increase in this context is not an additional 5% revenue-share, but 5% of the revenue share that's already paid, such that with the change, advisors previously paying 25 basis points will be charged 26.25 basis points (in Schwab's case, paid on the first $2 million in client assets Schwab sends the advisory firm), with similarly increases across each asset tier (Schwab currently charges 10 basis points on assets over $10 million, which would become 10.5 basis points instead).

Ultimately, the key point is that while custodial referral programs (and the perpetual fees they charge) represent a relatively expensive way for firms to grow their client base, they appear to remain attractive to certain firms (including larger RIAs in growth mode that benefit from economies of scale when it comes to client onboarding and service) who are happy to trade off this hard-dollar expense for the time that would otherwise be spent on alternative marketing techniques. Such that while the number of firms in Schwab's program has been shrinking, from 298 (following its acquisition of TD Ameritrade and its AdvisorDirect referral program) to 175 RIAs, the (predominantly larger and HNW-focused) firms that remain seem to believe the exclusivity of the program and volume of prospects it gives is well worth the cost… so much so, that Schwab has found it has pricing power to charge even more for these leads going forward from here.

20 IRA Mistakes To Avoid

(Christine Benz | Morningstar)

Individual Retirement Accounts (IRAs) are a popular way for individuals to save for retirement, thanks to their flexibility and low costs (with the Investment Company Institute estimating that these accounts held $15 trillion in assets as of September 2024). Nonetheless, IRAs are associated with a host of rules and strategies during both an investor's accumulation and distribution phases, offering advisors an opportunity to help clients get the most value out of them (and perhaps fix 'mistakes' in IRAs new clients bring to a firm).

For accumulators, one way to make the most of an IRA is to make contributions early in the year (rather than close to the deadline of April 15 of the following tax year) in order to give the contributions more time to compound. In addition, choosing strategically between traditional or Roth contributions (or perhaps a combination of the two) in a given year based on a client's financial situation (e.g., making Roth contributions in unusually low-income years) can help maximize the IRA's tax benefits. Also, for clients who are interested in making Roth IRA contributions but whose income puts them over the annual limits, using the "backdoor Roth" strategy can be an attractive option (and, given the implementation and recordkeeping requirements of these contributions, including the IRA aggregation rule, this can be a way for advisors to offer significant value!). And when it comes to investing funds in an IRA, using asset location principles (e.g., avoiding putting tax-advantaged investments like municipal bonds in an IRA) and using the broader investment options in an IRA (compared to many 401(k) plans) to diversify a client's portfolio can help maximize a client's total wealth.

Advisors can also add value for their clients in the distribution phase. At a basic level, ensuring that clients take their Required Minimum Distributions (RMDs) on time is a valuable service in itself, as the penalties for missed RMDs can be steep. In addition, advisors can help clients consider options for how to use their RMDs, whether by engaging in Qualified Charitable Distributions (QCDs) to mitigate the tax impact of the distributions or, for any RMD funds that aren't needed for ongoing spending, ensuring they remain invested (perhaps within a taxable brokerage account) to allow these dollars to continue to grow into the future. For clients with Roth IRAs, advisors can also add value by following the five-year rule for Roth contributions (to ensure that the withdrawal of growth in the account will be tax-free). Also, ensuring that clients' beneficiary designations are correct can help ensure that their IRAs pass to the intended recipients upon their deaths.

In sum, given the number of potential 'mistakes' that can be made when it comes to using IRAs, financial advisors are well-positioned to support clients in all life stages in maximizing the many benefits of these accounts, offering hard-dollar value in the process!

Boosting Client Retirement Savings (And Confidence) Using Spousal IRAs

(Lori Ioannou | The Wall Street Journal)

For client couples where both spouses work, each partner might bring their own retirement savings to the table, whether in the form of workplace retirement plans or IRAs. However, the balance of retirement savings can be significantly skewed for couples where one individual works and the other doesn't (or brings in relatively low income), which can potentially create financial disadvantages (e.g., if the couple is only able to take advantage of the retirement account contribution limits available to the working partner) and psychological challenges (e.g., if the non-working partner feels reliant on the working partner for their retirement).

One potential solution that can address both of these challenges is a spousal IRA, which is available to married couples who file their taxes under the married filing jointly status. These IRAs offer the ability for couples with sufficient earned income to make contributions to an IRA in the name of the non-working spouse (or a spouse that makes less money than the annual IRA contribution limit). On the financial side, this allows the couple to 'double up' on the tax benefits of traditional or Roth IRA contributions (if the clients have the financial capacity to make such contributions). Also, having a spousal IRA can provide a psychological boost to the non-working spouse, not only because the contributions to it represent the non-compensated work they might be doing for the partnership, but also because it can provide a sense of financial independence by having retirement assets in their name.

In the end, given that many clients might not be aware of the opportunity, spousal IRAs could be an untapped tool for advisors to support new client couples with one working spouse, potentially boosting each partner's retirement savings engagement and balances in the process!

How To Fix 'Misleading' Reporting On Clients' Form 1099-R

(Denise Appleby | Morningstar)

With tax season underway, financial advisory clients will be receiving a small mountain of tax forms. Those who made distributions from an IRA (or certain other plans) in 2024 (which might include working-age and retired clients!) will receive a copy of Form 1099-R, which shows how much money was withdrawn and whether the amount is taxable. However, because the IRA custodian might not have full information about the distribution, this form could be misleading and could require corrections to be made when the client files their tax return.

For example, traditional IRA distributions for clients with after-tax dollars in the account typically will include a prorated amount of after-tax (non-taxable) and pre-tax (taxable) amounts. However, because the IRA custodian will not know whether contributions were made on an after-tax or pre-tax basis, they will report the entire distribution as taxable. Nonetheless, if the custodian checks Box 2b on Form 1099-R ("Taxable Amount Not Determined"), the client can calculate the taxable and non-taxable portions of the distribution using Form 8606. Another 'misleading' entry on Form 1099-R can occur when clients engage in '60-day rollovers', as the IRA custodian is required to issue a 1099-R for the amount distributed even if it was subsequently rolled over into another IRA within the 60-day window. To ensure nontaxable treatment of the rollover, the client's tax preparer would report the gross distribution amount on Form 1040, line 4a, the amount not rolled over (if any) on line 4b, and write "rollover" next to line 4b to let the IRS know the reason why the amount is excludable from income. Similarly, clients taking advantage of QCDs during the year can follow a similar process to ensure they receive the appropriate tax treatment, entering "QCD" beside Line 4b.

Ultimately, the key point is that the information on a client's Form 1099-R might not tell the full story of the distributions made from their IRA during the year. Which means that advisors can add value by ensuring that the client (and their tax advisor) understand the full context behind the distributions to ensure the client doesn't pay taxes that aren't owed!

A Blueprint For Building Advisory Career Paths

(Ray Sclafani | ClientWise)

When making a new hire, an advisory firm might be looking to fill a specific role needed at that time. However, the individual being hired is likely to see the current position as just the start of a potential long-term career at the firm. Which suggests that creating (and communicating!) a career path for new hires (and current employees) can ensure they have an understanding of how they might progress within the firm, promoting employee engagement and retention in the process.

The first step to designing a career path (after naming it!) is to define the different career stages in the firm. For instance, an employee might advance from an entry-level associate or analyst position where they learn technical and operational aspects of the job to a mid-level lead advisor or manager position where they shift towards client-facing responsibilities and leadership to a senior-level partner or principal role where they are involved in strategic firm leadership to, finally, an executive CEO or managing partner role. Next, the firm can identify core competencies (e.g., technical, relationship management, business development) for each role that aligns with the firm's objectives. With these core competencies established, firms can create structures for mentorship and training (to actively develop employees) and measurable milestones (so employees know what is required of them to advance to the next level).

In addition to establishing competency standards and training plans to help employees get there, firms can establish compensation and incentives aligned with career progression (which might include base salary increases, bonus structures, and more), as well as provide a clear path to partnership or leadership roles. Finally, firms can encourage career planning conversations, potentially through quarterly check-ins and individual professional development plans, to ensure employees know where they are on the career path and what it will take to get to the next level.

Altogether, these steps provide a blueprint for establishing durable career paths for employees while allowing for employee-specific flexibility along the way (e.g., establishing senior technical specialist roles for employees not interested in management positions). Which can lead to greater employee satisfaction and its follow-on effects, from more effective succession planning to greater staff continuity for clients.

Building A Successful Advisory Firm Internship Program

(Rachel Elson | Citywire RIA)

Internships are common across a variety of industries in part because they offer benefits for all parties involved as interns get exposure to a field and a particular company (while [hopefully] getting paid for their work), while companies can have interns perform needed tasks while evaluating them for a potential offer for a full-time position. Financial planning firms are no exception, as interns can better understand what it's like to work in a 'real' firm and firms can evaluate interns without having to make a full-time commitment.

Elson's firm has brought on nine interns (including, previously, herself), which has resulted in three full-time hires (with the other interns either finishing out their degrees or going into other finance-related careers). To start, while there might be less pressure when hiring an intern compared to a full-time hire (given the time and financial commitment of the latter), casting a wide net (e.g., by partnering with undergraduate financial planning programs or with industry-specific matching programs like BLX) and narrowing it down by desired traits (e.g., an expressed interest in financial planning rather than finance writ large) can help identify candidates who would both be more likely to succeed in the internship and accept a full-time job offer if one is extended.

While it can take some time to train interns, this commitment can pay off in the work output they can produce. For instance, Elson's firm has interns review uploads of new client information (identifying potential gaps for advisors), enter client information into financial planning software, and help fill out planning spreadsheets, among other tasks, adding efficiency to the firm's new client onboarding process. And by having them work with real client data, the interns can be more prepared to take on elevated responsibilities if they do become a full-time employee.

In sum, while establishing an internship program might seem like a heavy lift for a financial planning firm, the effort can pay off in the form of additional support for the advisory team and a regular pipeline of vetted talent that can help the firm grow (amidst a competitive environment for hiring).

Lessons Learned From Training Eight New Advisors Simultaneously

(Hannah Moore | WealthManagement)

Serving as an effective advisor requires a multitude of skills, from the technical knowledge needed to provide sound recommendations on a variety of planning issues that might arise to the communication skills needed to ensure that clients feel understood. While aspiring advisors can gain technical knowledge through CFP education programs, putting this knowledge into practice (and developing the skills to do so effectively) can require a different type of training.

With this in mind, Moore started a residency-style program at her firm to give new planners the hands-on experience needed to serve clients well. From this experience, she found that while a new advisor might be technically competent, they might lack the confidence to put this knowledge into practice, whether in terms of handling emotionally charged scenarios or simply thinking of topics for small talk to keep meetings moving. To address this issue, she incorporated role plays and case studies using real-world scenarios to give new advisors exposure to unexpected client challenges before doing so in front of 'live' clients (which also presents the opportunity to provide regular feedback). In addition, while her firm had set processes for tasks such as creating financial plans and onboarding new clients, she incorporated training to help the new advisors be more adaptable (e.g., if an unplanned-for topic arises during a meeting) and confident in their ability to handle whatever in-meeting situations come their way.

Ultimately, the key point is that experiential learning is a key part of ensuring new planners not only have the technical knowledge needed to succeed, but also have the communication skills and confidence to do so. Which could lead to better advisor retention for firms and higher levels of service for their clients!

Nine Trends That Will Shape Work In 2025 And Beyond

(McRae, Aykens, Lowmaster, and Shepp | Harvard Business Review)

The modern workplace has changed considerably during the past five years, from the broader adoption of remote and hybrid work environments to the introduction of a new generation of Artificial Intelligence (AI)-powered tools. And while the future is inherently unpredictable, taking action on emerging workplace trends can help firms better attract and retain talent.

How (and whether) firms implement AI-powered tools in their day-to-day work can impact not only employee productivity, but also their wellbeing as well. For instance, companies will have to balance the costs of adding AI tools (both purchase costs and the training time needed to use tools effectively) with the potential productivity benefits they could bring. Further, while AI can make workers more productive, it raises several challenges, from providing new hires with meaningful work (if a significant amount of traditional entry-level work can be performed by AI tools) to properly evaluating employees (as mediocre performers could appear more productive thanks to AI while still putting in less work than their peers).

Another key issue for firms will be how to promote greater employee engagement, particularly with their coworkers. For instance, a 2024 survey by research and consulting firm Gartner found that only 29% of employees globally feel satisfied with the interactions they have with coworkers (down from 36% in 2021). And while some might assume this is the result of the shift toward remote and hybrid work, a separate analysis from Gartner found that on-site workers have been even less satisfied with their interactions than their hybrid or remote counterparts. With this in mind, firms can consider ways to boost collaboration, from analyzing each employee's need for connection (from creating peer groups to instituting a mentorship program) to potentially incorporating AI-powered 'nudgetech' software that can prompt employees to communicate based on a particular colleague's preferences.

In the end, while AI and other technological improvements have the potential to improve productivity, 'old school' aspects of the workplace, from effective management to collaboration and camaraderie among employees, remain important factors in creating an environment where employees can thrive. Which, at a time when a significant percentage of advisors are expected to retire, could help firms maintain a solid, and satisfied, talent base in the years ahead.

U.S. Employee Engagement Sinks To 10-Year Low As Workers Seek Clearer Expectations, Development Paths

(Jim Harter | Gallup)

Given that the financial advice industry, on the whole, tends to enjoy strong profit margins and high client retention, it could be easy for firm leaders to miss simmering levels of disengagement among employees which, if not addressed, could lead to (costly) talent pipeline issues in the future.

According to research from Gallup (of employees across industries), employee engagement in the U.S. fell to 31% in 2024, its lowest level since 2014, with the number of actively disengaged employees ticking up to 17%. Particular areas contributing to this level of disengagement include clarity of expectations (with 46% of employees indicating they know what is expected of them at work, down from a high of 56% in 2020), feeling that someone at work cares about them as a person (with 39% of employees feeling strongly that this is the case, down from 47% in 2020), and having someone that is encouraging their development (with only 30% of employees strongly agreeing with this statement, down from 36%). Notably, workers younger than 35 and those in certain industries (which included finance) were less likely to be engaged than others. And while these factors point to potential issues with management practices, only 31% of managers themselves were engaged, suggesting these issues extend up the management chain.

Altogether, these findings indicate the importance of building strong workplace cultures that align with a firm's purpose and value to ensure employees know what is expected of them and how their work benefits the firm and those they serve. Further, these data points suggest that making investments in managers (e.g., providing management training to give new and current managers greater skills and confidence) could pay off by improving engagement amongst the employees they supervise as well as the managers themselves!

The American Worker Is Becoming More Productive

(Justin Lahart and Lauren Weber | The Wall Street Journal)

Whether considering a financial planning firm or the economy as a whole, there are two primary ways to grow: adding more labor or increasing workers' productivity. While both can prove valuable, much of the attention in recent years has been on productivity and the potential for technological advancements (including AI) to spur it on.

According to the Department of Labor, productivity (i.e., the total output of the economy divided by hours worked) increased 2% in the third quarter of 2024 compared to the prior-year period, the fifth quarter in a row with an increase of at least 2% (whereas there were only two such quarters in the five years before the pandemic). While the exact causes of this boost are unclear, potential contributors include the adoption of new technologies (e.g., videoconferencing software reducing time spent traveling to meetings) and a trend of workers advancing into higher-skilled positions. Notably, though, inflation can be a double-edged sword for these workers, as while greater productivity can lead to higher wages, it could lead some companies to employ fewer workers. Nonetheless, applications to start businesses with a high propensity to add employees are nearly 50% higher than the monthly levels seen before the pandemic, suggesting that employees might have additional opportunities to put their talents to work.

In sum, individual companies and the economy as a whole appear to be benefiting from improved worker productivity, leading to opportunities and key decisions for both firms (e.g., whether to add more high-productivity employees to scale effectively or level off headcount and maintain an efficient smaller practice?) and advisors themselves (e.g., whether to remain with an established firm, join a startup, or start a firm of their own).

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.