An aging base of brokers, many with even older clients, is prompting many large institutions to scramble to figure out how to prepare for the inevitable and retain the business for generations to come. But right now, most of their eggs are in one unprotected basket.
This thorny issue was the subject of a six-person panel on the topic of succession planning, at the Securities Industry and Financial Markets Association (Sifma) Private Client Conference on April 18 in Boston. It's an issue that the independent brokerage and RIA businesses also are wrestling with, but it may be even more pronounced at wirehouse and regional firms.
Scott Falk, chief administrative officer, private wealth management, at Robert W. Baird, said his firm recognized the issue with the aging population of financial advisors as their average age is 51 and 22% of all their advisors are already over the age of 60. He also sees a concentration of older clients that have more wealth using older advisors, which is a major business risk.
Although there are hurdles in transferring business from an older advisor to a younger advisor, Falk said two strategies are working well for the organization:
1. Baird qualified teams. The organization has a focus on creating teams with multiple generations of advisors. Baird creates certain rules and incentives to make this work.
2. Codified succession planning. They have framed out information that addresses the program and Falk held up a binder as proof of how they have pulled all this information together and formalized a program to make it easier for the advisors to plan and execute succession plans.
Carolyn Armitage, managing director at Western International Securities Inc., told a story of how a 45-year-old advisor dropped dead, 20 years before expecting to retire. The purpose of the example was to make it clear that a succession plan needs to be in place for an advisor, no matter the age.
Armitage said she sees a slowdown in business growth for advisors at about age 50. She added that advisors usually do this through attrition. Often the problem reaches the point where they do not have much left when it comes time to sell their book.
She stressed that a continuity agreement plan should be set up, even if the advisors are not ready for a buy-sell agreement. At least then advisors have a plan in place for a sudden death.
Her firm encourages advisors to use their own attorney, but does provide sample documents and calculators to value the business. They can also help with the financing involved in the deals.