No Succession Plan? You Could Be Flirting with Disaster

Too many financial advisors are playing a dangerous game of “kick the can” with their business continuity or succession plans, whether through procrastination or a genuine fear of what that plan might look like. According to Cerulli Associates, 38% of advisors will age out of the industry over the next decade—that’s 110,000 advisors— and the Financial Planning Association finds that only around 11% of them have a comprehensive succession plan in place. And that’s a problem.

Why? Because the U.S. Securities and Exchange commission in 2016 proposed a rule mandating business succession and transition plans for all financial advisors overseen by the agency. And in 2019, Massachusetts Secretary of the Commonwealth William F. Galvin proposed updates to new regulations to:

  • Increase accountability in the financial industry
  • Protect investors by leveraging a strict fiduciary conduct standard on agents, broker-dealers, investment advisors, and investment advisor representatives
  • Protect clients from the negative fallout of poor financial advice

As Galvin said, “My office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice. Investors must come first.” Massachusetts is one of several states instituting regulations that consider succession planning an integral, critical component of an advisor’s fiduciary duties because advisors are leaving clients vulnerable by not preparing their own practices for when they are no longer at the helm.

Compliance is Key

Isn’t it a bit ironic that financial advisors spend their careers helping clients plan for retirement—yet so many are short-sighted when it comes to anticipating and planning for their own departure from their firms?

The average age of financial advisors ranges between 51 and 55, but many financial advisors continue working well into their 60s, 70s, even 80’s. Many of these older advisors started their careers in an environment that imposed very few, if any, regulatory guidelines.

A lack of knowledge or understanding about how to stay compliant in an increasingly regulated industry is dangerous and can cause serious problems for those advisors. Those failing to develop and implement succession and business continuity plans increase the possibility of facing compliance and legal challenges that include censure, fines, suspension, or registration revocation.

These issues, though, are completely preventable—and perhaps that’s the biggest argument for making time to create a succession plan: no one wants to lose retirement income because of a lack of planning.

Plus, if an advisor plans to sell his or her book to another firm and there are noncompliance issues, that will certainly raise a red flag. Creating a formal roadmap for your future makes good financial sense.

  • You’ll be taking care of your practice and clients
  • You’ll be taking care of your own financial future and that of your family
  • You’ll stay in compliance with regulations as Massachusetts and other states continue developing, refining and enforcing them.

What Could Go Wrong?

Sadly, many financial advisors leave their firms unexpectedly, due to a health issue or death. Lacking a succession plan can have far-reaching effects on the firm. Should you become suddenly incapacitated, who has trading or banking authority? Who will run payroll? Who will access your computer systems — and how? Who’s prepared to answer your clients’ questions and reassure them that their assets are still well managed? Without clear answers to these, and other questions, the value of your firm could drop precipitously. Clients and staff might begin to defect; heirs may find a buyer whose investment philosophy or management style are at odds with the firm, and the terms of a potential sale could be less than ideal.

It’s Never Too Late to Plan

To earn top dollar for your business requires some strategic thinking—starting now. Perhaps you have a succession plan simmering on your brain’s back burner. Maybe you’re thinking about selling to an outside buyer or selling to your family members, a colleague, or your firm’s internal staff. Whatever your thoughts, stay in control of your retirement by creating a strategy that benefits all stakeholders: you, your family, and your clients.

Trust Advisory Group’s TAG TEAM model is specifically designed to seamlessly transition advisors, clients and their assets to ensure business continuity and peace of mind for everyone involved. TAG will purchase your business for fair market value and you continue to participate in potential incremental revenue generated during the transition period through your agreed upon earnout period. Your TAG TEAM will work hard to increase the revenue from your existing book and will share that incremental revenue with you.

No matter where you are in your professional journey, we’re here to help you protect your business for yourself and your heirs through our:

Learn more about all our options for transitioning advisors and contact us to answer any questions you may have.

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