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Five Reasons Advisor Succession Plans Fail
Financial advisors help their clients plan for the near- and long-term future. And yet many of these same advisors — one study suggests 60% of advisors within five years of retirement — have not taken time to create succession plans for their own business. Gary Campbell at Forbes thinks it’s likely that many of these advisors have similar reasons for delaying creating succession plans as their clients offer for waiting to get serious about their own financial plans.
Many experts caution that waiting too long to develop and execute a succession plan can delay an advisor’s exit strategy for years. It’s recommended that advisors begin planning early — as much as 5 to 10 years in advance of retirement — to avoid some of the main reasons why succession plans fail.
- Unrealistic expectations for a business valuation
Advisors may be unfamiliar with all the factors that contribute to calculating their business’s value. Conducting valuation in plenty of time gives advisors an opportunity to strategize and implement changes to increase the value. - Not finding a good match
Advisors want to align with a successor with similar values. Finding that successor who will nurture and care for clients equally well takes time. - Inadequate successor mentoring
Advisors who leave their businesses to younger, less experienced successors must prioritize mentoring. It takes time to teach a successor how to lead, delegate, make decisions, and resolve conflicts. - Not integrating successors soon enough
Experts recommend starting the integration practice months — if not a few years — before actively retiring. This slow transition helps advisors’ successors to understand the brand, processes, teams, and clients. - Not accounting for what-if scenarios
Advisors encourage their clients to plan for the unexpected — unforeseen health issues or market fluctuations. It’s only logical for advisors to incorporate those scenarios into their own succession planning, too.
It’s Time RIAs Got Serious About Succession Planning
According to Gary Stern at RIAIntel, Registered Investment Advisors (RIAs) spend their careers helping clients to achieve and maintain strong financial health. Yet many RIAs give little thought to protecting their own financial health through the creation and implementation of succession plans.
A range of factors is at play:
- Many advisors are working well past retirement age — even into their 70s — and have no plans to retire
- Other advisors feel that the informal succession plans they’ve created will suffice
- Some advisors have given little thought to their own mortality, choosing to bury their heads in the proverbial sand
But when advisors become incapacitated suddenly, or pass away, a whole host of issues arrises. Clients wonder how to access their assets and financial plans — and find a new advisor whom they can trust. The advisor’s own financial future — and the future of his family and loved ones — is in jeopardy, too.
Since many advisors are at or above 52 years of age, and 40% of advisors are expected to retire within the next 10 years, experts recommend that advisors take steps sooner — not later — to protect their books’ values. “A seller’s market will turn into a buyer’s market,” cautions Marina Shtyrkov, a Boston-based research analyst at Cerulli. And that potential glut of financial practices saturating the market as more analysts retire will shrink the value.
One way to preserve a book’s value, protect valuable client assets and the analyst’s own best financial interests is for those analysts without a concrete succession plan to take steps to create one — admittedly a challenge for those solo practitioners outside larger cities or working in remote zip codes. But while a challenge, it just makes good financial sense to make the time to create and put that plan in place.
