Company Press Release

BOSTON, JUNE 2008: Cerulli Associates estimates that the number of financial advisors practicing in the United States dropped from over 301,000 in 2004 to just over 298,000 in 2007. This figure is surprising, particularly considering that the financial advice industry is so well poised to benefit from the retirement of the Baby Boomers. Some of this drop is advantageous in that bro- ker/dealers found their least productive advisors were also their greatest compliance risks. However, the larger issue is that the industry has not effectively attracted new advisors to the industry. Broker/dealers must think strategically about hiring the next generation of professionals. “Nearly every channel saw a drop in advisors over this time period. The exceptions were the bank and RIA channels, which had growth rates of just more than 2% during the last three years,” says Bing Waldert, Associate Director of Intermediary Research at Cerulli Associates.

“Dually registered advisors also experienced growth,” Waldert says.Cerulli defines dually regis- tered advisors as those who maintain a B/D affiliation, but also have their own RIA (separate from the B/D) for purposes of providing fee-based financial advice. This group grew at an annualized rate of 22% in the past three years, a stark contrast to other channels’ growth. In fact, once these advisors are added to the independent broker/dealer (IBD) and RIA channels, the IBD channel grows rather than shrinks, and the growth rate of RIAs goes up to an annualized rate of more than 8%.

While advisor ranks are decreasing in number, the number of wholesalers calling on these advi- sors is expected to increase.Cerulli’s survey (conducted in conjunction with Advanced Sales Corporation) indicates that there is nearly a universal plan to increase wholesaling staffs among product manufacturers.

As a result, wholesaler retention and recruitment are likely to prove more challenging for manu- facturers in the future. And, the skills necessary to be a wholesaler are changing as they are expected to play a more consultative role with their advisors.

“There are significant mismatches in the experience and education of advisors and wholesalers. More than 60% of advisors have 10 years or more of industry experience, while only 23% of wholesalers have been selling externally for that long,” says Waldert. Product manufacturers must be mindful of this gap as they shift their strategies to a more con- sultative approach. Training and coaching resources should be available to help wholesalers pro- vide more meaningful content to their advisors.

These are some of the latest findings from Cerulli’s annual report on the intermediary market- place, Cerulli QQuantitative UUpdate: IIntermediaryy MMarkets 22008..This report is one of 17 releases in the Cerulli QuantitativeUpdate series, which provides firms with sourcebooks for metrics and analyses on specific markets and topics. Intermediary Marketsis in its sixth iteration and provides comprehensive data and analysis of intermediary and financial product distribution.Data from this report is derived from Cerulli’s own ongoing proprietary surveys of firms across the industry as well advisor-focused surveys con- ducted in partnership with Investment Management Consultants Association (IMCA)and the Financial Planning Association (FPA). Wholesaler data is garnered from an ongoing survey con- ducted in partnership with AdvancedSales Corporation. While this report is a stand-alone publication, it is complemented by Cerulli QuantitativeUpdate: AdvisorMetrics,which focuses on advisor and consumer-focused metrics and analyses. The next iteration ofAdvisor Metrics will be released in November 2008.

About Cerulli Associates

Headquartered in Boston, Cerulli Associates provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments. Located in Singapore, Cerulli’s international practice focuses on more than 20 primary and secondary asset management markets, providing in-depth strategic knowledge and research in product development and distribution. Cerulli’s strength lies in the ability of its Singapore- based analysts to provide international asset managers with a local perspective on strategic decision-making. Cerulli’s research product lines include ThematicReports, CerulliQuantitativeUpdates, and The CerulliEdge series.


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