The Looming Advisor Shortage Over the Next Decade

1.?Consumer Prices Rise 0.5% in January, Higher Than Expected as Annual Rate Rises to 3% (CNBC)

• Both headline and core inflation ran hotter than expected in January, rising 0.5% and 0.4% for the month, respectively.
• So-called “supercore inflation” — which excludes housing, in addition to food and energy costs — increased by 0.8% on the month, signaling that higher wage costs could be a contributing factor.
• On an annual basis, the CPI advanced 3%, while core inflation increased by 3.3%.
• Overall, price gains were broad-based. One particular sore spot: the price of eggs, which is up 53% from a year ago.
• The jump in prices ate into worker paychecks, as the Consumer Price Index (CPI) increase entirely offset the 0.5% move higher in average hourly earnings, the Bureau of Labor Statistics said in a separate release.
• “We don’t get excited about one or two good readings and we don’t get excited about one or two bad readings,” Fed Chair Jerome Powell said in testimony before Congress last week, adding that the central bank is not in a hurry to make further rate cuts.
• Markets now only expect one additional rate cut in 2025, and many economists question whether there will be any at all. Bank of America predicts that the Fed is done cutting rates for this cycle.

The bottom line: The latest report indicates that progress on inflation may be slowing or reversing. Coupled with a robust labor market, and elevated uncertainty around U.S. government policy and its impact on economic growth and inflation, this makes it unlikely that the Fed will lower interest rates in the near term. A rate hike could be on the table if prices continue to increase.

2.?Q4 Saw “No Real Changes” in Market Conditions from the Rest of the Year, Says CIAB (CIAB)

• Premiums continued to rise across all account sizes, averaging a 5.4% increase in Q4 2024, up slightly from 5.1% in the previous quarter, according to the CIAB’s Q4 2024 P&C Market Survey. This marked the 29th quarter of consecutive premium increases.
• “Appetite for small business remains strong,” noted one large Northwestern firm, but other survey respondents largely indicated there were no material changes in underwriting conditions across other account sizes.
• Cyber insurance premiums declined for the third consecutive quarter, falling by 1.8% – a record low – amid increasing underwriting capacity, heightened competition, and improved cyber risk controls, despite a rise in ransomware incidents.
• Commercial auto and umbrella insurance saw the largest increases, with premiums rising 8.9% and 8.7%, respectively.
• A growing shortage of commercial drivers, higher repair costs, and the rising adoption of electric vehicle fleets contributed to auto premium hikes.
• Workers' compensation, Directors & Officers (D&O), and employment practices liability were among the few lines with premium decreases, as broader market trends favored declining costs in these areas.
• Commercial property premiums increased slowly, rising 6% in Q4 compared to 7.9% in Q3 and 11.8% in Q4 of 2023. However, insurers remain cautious, often requiring higher deductibles and layered coverage for properties exposed to high-risk events like fires, windstorms, and hail.

The bottom line: The insurance market remains in a prolonged hardening phase, with premium increases persisting across most commercial lines. However, signs of stabilization in property insurance and continued declines in cyber premiums suggest that competition and risk mitigation efforts are starting to temper rate hikes. Overall, apart from commercial auto and umbrella, Q4 “seemed to be a stable quarter,” according to the report.

3. Cerulli: Independent RIAs to Outpace All Other Channels by 2028 (Wealth Management)?

• Independent registered investment advisors (RIAs) are expected to see the highest growth among advisor channels, according to a recent study by Cerulli Associates.
• Independent RIA channels, representing fee-based RIAs with no broker/dealer (B/D) affiliation, will see a 4% compound annual growth rate (CAGR) through 2028, reaching over 56,000 advisors.
• Other advisor channels are shrinking or stagnant. Wirehouses and insurance B/Ds will see the largest declines, with annual headcount reductions of 1.9% and 2.6%, respectively. National and regional B/Ds, as well as hybrid RIAs, are expected to remain flat.
• However, hybrid RIAs could gain traction in the long run, with a long-term projected CAGR of 4.7%.
• The $105T wealth transfer presents major opportunities, but new client acquisition remains the biggest challenge for advisors, with 55% citing it as a top concern. Other challenges include compliance, technology, and succession planning.
• Clear communication about costs or substantial portfolio changes is key to attracting and retaining clients. “For affluent investors, transparency is the most important factor when choosing an advisor,” Cerulli said.

The bottom line: The wealth management industry is seeing a continued shift toward independent RIAs as advisors seek greater autonomy. This trend is enabled by advancements in technology – which make it easier for advisors to run their own business without needing the support of a larger firm – as well as the industry’s shift away from commission-based compensation and toward fee-based models. “In pursuing inorganic growth strategies, firms should be mindful of growing advisor preference for autonomy and control and a desire to escape the bureaucracy of large firms,” Cerulli analysts wrote.

4. The Looming Advisor Shortage in U.S. Wealth Management (McKinsey)?

• The U.S. wealth management industry entered 2025 in a strong position, fueled by a growing demand for its services – but there is a talent gap on the horizon.
• Demand for the industry continues to rise: McKinsey estimates the number of advised relationships could reach 67-71 million by 2034, a 28-34% increase from 53 million relationships in 2024.
• In addition, the number of affluent households (defined as those with $500K+ in investable assets) is projected to grow 4-5% per year, and clients are increasingly willing to pay a premium for human advice.
• However, the advisor workforce has only grown at 0.3% per year over the past decade, and the outlook is even more challenging: headcount is projected to decline by 0.2% annually.
• That means that at current productivity levels, the industry could face a shortfall of 90,000 to 110,000 advisors by 2034 - as retirements outpace recruitment.
• All in all, an estimated 110,000 advisors (38% of the current total), representing 42% of total industry assets, are expected to retire in the next decade.

The bottom line: The U.S. wealth management industry could face an urgent need to scale its advisor workforce to meet growing client demand for personalized service. Addressing the talent shortfall will require a combination of recruitment, productivity enhancements, and technology integration. Firms that invest in these areas will be best positioned to meet rising client demand and sustain long-term growth.

5. Global InsurTech Funding Dropped 5.6% YoY, Despite InsurTech Boom (Gallagher Re)

• 2024 InsurTech funding declined by 5.6% on a year-over-year (YoY) basis to a seven-year low of $4.25B, according to Gallagher Re’s Q4 Global InsurTech Report.
• Q4 funding was down by ~50% from the prior quarter, with both the P&C and L&H sectors seeing reduced investments.
• There were some bright spots, however: early-stage funding increased 9% YoY, and the average deal size increased 15% during the year, from $12.8M in 2023 to $14.67M in 2024.
• AI-centered InsurTechs accounted for 35% of the deals during the year.
• The U.S. remains the largest InsurTech market globally, accounting for roughly half of all InsurTech deals in 2024. The UK was the second-most significant market for InsurTechs, representing 9% of the total deals during the year.
• Investor interest in the sector remains strong, particularly from insurer and reinsurer corporate venture capital (CVC) funds.

The bottom line: In 2024, the InsurTech industry embraced a more sustainable and disciplined approach, following the widespread layoffs and asset selloffs seen in 2022 and 2023. Companies that lacked strong fundamentals either restructured or exited the market, forcing a focus on profitability over growth. With fewer large funding rounds and a decline in $1B+ “unicorn” startups, the industry moved away from unsustainable hiring and high-risk strategies, and “matured as a result,” says Gallagher.

6. What Else is Happening?

• Microsoft unveiled Majorana 1, its new, one-of-a-kind quantum chip. If successful, the technology could unlock groundbreaking solutions, potentially transforming industries like healthcare, financial services, and AI.
• President Trump floated a?~25% tariff on automobile, semiconductor, and pharmaceutical imports, with an announcement coming as soon as April 2. He also indicated the 25% Canada and Mexico tariffs will take effect next week.
• 2025 could be the year to reach $200B in insured CAT losses, said AIG CEO Peter Zaffino. “In a month with one of the lowest model probabilities of loss, the California wildfires alone would make the first quarter of 2025 the second most costly first quarter for natural catastrophes on record.”
• California Insurance Commissioner Ricardo Lara approved a $1B assessment on admitted insurers to fund the FAIR Plan’s wildfire claims. Insurers can request approval to pass half of the cost to policyholders.
• Can the S&P 500 pull off a three-peat 20%+ year? Wells Fargo says “In short, no.”
• The Biden-era merger review guidelines are set to remain in place for now. "If merger guidelines change with every new administration, they will become largely worthless to businesses and the courts," wrote FTC chair Andrew Ferguson in a memo to staff.

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