There is an old saying that the cobbler’s children have no shoes, which is an apt metaphor for the financial planning profession.
Advisors spend their entire careers crafting financial plans for their clients, yet many haven’t made plans for the future of their businesses. This has become a theme I have witnessed many times in my work with advisors, and has now been documented. According to a recent TD AMERITRADE Institutional RIA Sentiment Survey,1 57% of advisors do not have a formal succession plan and 88% do not have a business valuation in place.
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This lack-of-planning and an aging advisor population is creating urgency in the industry. According to the National Association of Personal Financial Advisors, the average age of advisors is north of 50 making the need for succession planning more important, particularly as it can take an average of 5-10 years to groom a successor based on my experience working with advisors.
An additional finding of note was that despite the recent headlines around industry roll-ups and consolidation, the survey shows that the majority of advisors are looking to keep their firms independent and want to transition internally. The top reasons for this approach were to support the long-term viability of the firm, meet client expectations that the firm had a succession plan in place, provide a smooth transition into their retirement, provide for the continuity of their employees, and to enhance the business valuation of the firm.
The fact that a majority of advisors we surveyed are looking to transition their business to an internal candidate is a very positive sign for the long-term health of the industry. However, one of the frequently cited reasons for why advisors didn’t have a plan in place was that they hadn’t identified a successor yet. Over 40% of advisors who indicated that they did not have a plan said it was because of a lack of a clear candidate, which points to a pressing issue in the industry. Grooming the Next Generation advisor is becoming increasingly important and something advisors need to put on their list of strategic priorities.
Where can you find qualified candidates to bring into your firm? Students graduating with a degree in financial planning could benefit from the opportunity to apply their knowledge in a real-world setting. This may be a win-win situation for an advisor looking to share knowledge and potentially his or her business with a student eager to start their career. The key, however, to successfully attracting and retaining these bright prospects is to have an organizational structure in place with clearly defined career paths that can be easily articulated and communicated so that these Next Gen advisors will want to invest their careers with you.
If you build this “succession pipeline” into your practice, not only will you be building operational leverage to help you grow efficiently, you’ll also be building long-term business value that you can potentially monetize when you retire.
So don’t look at your staff as a cost structure. Look at them as your internal investment that can provide you with a substantial “ROI” when you exit the business. There’s no time to waste. The clock is ticking and our industry isn’t getting any younger.
George Tamer is the Director of Strategic Relationships for TD AMERITRADE Institutional. George can be contacted at
TD AMERITRADE, Inc., member FINRA/SIPC/NFA. The foregoing is provided for informational purposes only and should not be construed as legal or professional advice. Consult with counsel and/or an investment bank for your individual situation. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.
1April 2010 TD AMERITRADE RIA Sentiment Survey - A random sample of five hundred (500) RIAs participated in a telephone survey between April 7 – April 22, 2010.