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.

Armitage said they will see about a 50% attrition rate in their advisors, whether it is for health reasons or age, and admitted they don't have a plan in place to recruit young reps. This is a serious concern as their average age is 59. They are seeing a 43-to-1 ratio of buyers to sellers, but she believes this sellers' market will change to closer to a 1-to-1 ratio as more older advisors begin to sell.

Shane Raymond, director of business and professional development, at RBC Wealth Management - US, believes that people do not really listen until a problem is staring them in the face, which is the heart of the problem for advisors who fail to plan to eventually transfer client relationships. Moreover, the pool of younger advisors to take over a book is very shallow.

His firm creates teams based on an "anchor." The larger-producing advisor and the ones he or she is teamed up with are not penalized. Thus, the grid for compensation becomes one of the benefits of forming a team. For the team to be official in their eyes, it needs to have a formal strategy with roles and responsibilities, plus they need a succession plan for death or disability.

His practice management team does not pair advisors, but they do help facilitate the conversation. He said their program has been around about a year and they are seeing some good momentum.

Paul Santucci, COO, wealth management advisor group, wealth management for the Americas at UBS, has about 7,000 financial advisors and Santucci said that is the number they want. The real issue for them moving forward with succession planning is that the firm stopped their training program three or four years ago.The lack of a proper succession plan in place can hurt the organization, with up-front deals as high as they have ever been. To address this, the organization is now hiring 200 to 250 financial advisors a year.

Santucci sees two interesting trends. One is that a certain amount of advisors are going to come off loans. The second is that family members are joining teams and he thinks that is fantastic.

He stated that advisors do not want to spend time in "divorce court," so they have a week-long process before the advisors get "married." Advisors have to be with their new partner for two years before the succession starts. He said this needs to be a retirement program for advisors with payouts over a five-year period.

Darryl Metzger, executive vice president and director, private client group, at Hilliard Lyons, who moderated the session, said that the roles and goals need to be formalized in an agreement up front or they see a lot of these relationships fall apart.

One common structure they use for deals is a four-year commission sharing arrangement in which it goes from a 50% payout to 60% to 70%, assuming the retiring advisor will not do a lot of work in years two and three. He or she will probably do "client entertainment" and client meetings. Hilliard Lyons can also help finance deals, where the remaining advisor pays the organization back over time.

--Mike Byrnes