By Mike Byrnes

A recent study of 502 TD Ameritrade Institutional RIAs made it clear that advisors need to do a better job of planning for succession and developing the future leaders of their firms.

A Void Of Succession Plans
Of the respondents, 11% said they were concerned about succession planning, down from 15% the previous quarter, while at the same time only 40% have a succession plan.  If that percentage holds true for the entire industry, that means that more than half of advisors do not have a succession plan.  Plus, many that have outdated agreements need to reevaluate their existing plans. 

A positive note in the survey is that more advisors are developing a succession plan, up from 4% to 22% of responses.

"The average age of survey respondents is 54 years. However, the mindset of an advisor in his or her fifties is most likely on business building, not retirement," said Zohar Swaine, managing director, product & strategy, TD Ameritrade Institutional. "Advisors are so focused on taking care of their clients and growing their business, they often give little thought to how they'll leave it and can be blindsided by the amount of time it takes to create and execute an effective succession plan. By starting early, advisors can create, finance and execute a successful succession plan."


The Drive To Have A Succession Plan
Of all the factors for having a formal succession plan, fulfilling clients' desires to have one in place tops the list.  

This sometimes plays a role in prospect decision making too, especially if they are used to working with a big firm where continuity of service might not be perceived as much of an issue.

Advisors without succession plans should ask themselves:  Do I want my firm to outlive me?  Do I want my employees to have a long-term home for their careers?  And lastly, What is the best thing for my clients and my own family?


The Risk Of Not Having A Succession Plan
George Tamer, director, strategic relationships, TD Ameritrade Institutional, said, "Just this year we have run into three advisors that were caught not having a plan in place."  Tamer added one advisor had an informal, handshake deal, but the prospective buyer backed out after he found out the advisor had a terminal illness.The two other advisors who didn't have plans were a sole practitioner who was hospitalized for an extended period of time and one who survived a heart attack.

In these cases, the lack of a succession plan left all three advisors scrambling to keep their business afloat and to find someone to take care of their clients, all at a time when they should be focusing on their own health.  Tamer said, "Now your business is on a life line. That's the last thing you want to be worried about."

"Buyers are always looking for ways to discount the multiple, like saying the book has an aging population," said Tamer.  These poor-health-related sales really give the buyer the upper hand.

Tamer said that in cases where an advisor has died with a succession plan, TD Ameritrade has helped the staff or the widow wind down the business.  "At that point it is too late [for the family to step in], as we have to take the instructions from the end client," Tamer said. "We can't take instructions from the widow if she is not listed in the business."

Picking A Successor
Finding a successor within a firm is the choice of the majority of advisors, the survey says. The survey showed that 50% anticipate implementing an internal successor, 11% plan to sell the businesses, 8% will look to merge with another firm and 30% are still undecided.  The data also showed that the biggest reason there is no succession plan in place is that no clear successor has been identified.  This holds true for over half of those surveyed.

Although RIAs need to find successors, almost half believe the industry has a talent shortage, in spite of high levels of unemployment.  The good news for job seekers is that RIAs are looking to add to staff in several areas with specific talents noted below.  

The Next Generation Of Advisors
Only 7% of respondents noted that they have formal mentor programs, leaving young people who want to break into the business with options like networking, taking professional development and training programs, and job shadowing.

But from a business standpoint, having some younger people on staff makes sense. As much as $18 trillion will be passing to younger generations in the coming years, and those younger clients want to work with someone their own age.  "They grew up together, they are tech savvy, they have learned more about the financial markets than older gerenations and they want digital assets," said Tamer.

Mike Byrnes founded Byrnes Consulting to provide consulting services to help advisors become even more successful.  His expertise is in business planning, marketing strategy, business development, client service and management effectiveness, along with several other areas.  Read more at www.byrnesconsulting.com.