A man who does not think and plan long ahead will find trouble right at his door.  —Confucius

Much is being written these days about the need for succession planning in our profession. According to CNBC, “Data produced by research firm Cerulli Associates suggest a bleak outlook for the industry. Aging advisors are expected to retire in droves over the next two decades, and relatively few young people are entering the industry to take their place. Financial advisors without a succession plan for their practices put not only their own retirement at risk but also the well-being of their clients. The average age of advisors in the country is now 50.9 years, and 43% of advisors in the industry are over the age of 55 years, while just 11% are under the age of 35. Based on the expected number of retiring advisors, the entrance of new advisors to the industry and the growth in demand for financial advice, consulting firm Moss Adams has estimated that the industry could face a shortfall of more than 200,000 advisors by 2022. While the industry as a whole faces a looming talent shortage, RIAs—particularly solo practitioners—are the most vulnerable. Most of them lack the resources to recruit and train young people, and studies show that just 30% of them have any explicit succession plan.”

Several years ago, a quality high-service boutique accounting firm with whom we shared several clients was merged with a large national firm (“taken over” is a better description), and it wasn’t long before we noticed a significant difference in the firm’s service proposition. It seemed much less personal. The clients we had referred to this firm over the years also noticed, and many eventually found alternative firms with which to do business. We stopped referring business to them.

There was only one surviving partner from the original firm (the others had retired). I asked him why they decided to join forces with the other company, since they appeared to be quite successful. He acknowledged that things were far different than they were before, and that while it was positive to have the financial backing of a large firm, it certainly changed the relationships they have with their clients. But the firm really had no choice. There were four partners and all except him were getting ready to retire. There was no way, he said, that there would have been enough money to pay the other three and maintain the business. He seemed sad as he told the story, even though he was now the managing partner of this new branch.

Why, I asked, weren’t ownership opportunities offered to those young accountants that the firm had hired over the years—many of whom had left it? He didn’t really have an answer, but it seems obvious to me that the major reason was that the four partners simply did not want to dilute their ownership.

Today, we see many financial planning firms in similar situations. As I attend meetings and have discussions with other planners throughout the country, I am amazed at the number of firms that are owned by one or perhaps two people in their late 50s or 60s who have no viable exit strategy. Without younger professionals in their firms to purchase their shares, is there a market, or would they be forced to sell to a firm that may not share their values?

Early in my career, I decided that I wanted to build a firm that could function and grow without me. To do so meant investing in quality people and offering them opportunities to grow and prosper. Some planners with whom I have spoken have expressed concern that diluting their ownership by offering shares to other professionals may adversely affect their income.

I once pointed out to a planner who was reluctant to give up ownership that if she offered stakes to others, she would create a market for her shares when she retired (among other advantages). She replied that if she owned 100% of the firm and 100% of the profit, she would be able to invest enough to fund her own retirement. But where would that, I wondered, leave her clients?

Over the years, I am sure that my income has increased as a result of the additional shareholders at our firm, and my partners and I created a market for the shares we own. Perhaps most important is the fact that our clients know that there will be no disruption in the quality of the services they have come to expect.