The average age of financial advisors U.S. is comfortably north of 50, so it shouldn’t be a surprise that a recent study by Cerulli Associates shows that 32 percent of advisors indicated they plan to leave the profession within 10 years.
The big take away from this number, says the Boston-based global analytics firm, is that it highlights the need for advisors to put their succession planning into a higher gear.
“It can take a year or longer to fully execute a succession plan,” said Kenton Shirk, associate director at Cerulli. “The process can be especially difficult for those advisors with a unique specialization, diverse business lines, or a secluded location.”
The succession planning topic was one of several areas covered in the recently released first quarter issue of The Cerulli Edge – Advisor Edition. Cerulli writes that succession planning is an involved process that includes identifying a successor, conducting due diligence, striking a deal, and executing a transition. And it notes the timeline can be much longer for firms planning to groom an internal successor.
One of the big hangups with succession planning is that both clients and staff are often uncomfortable broaching the topic. Cerulli suggests that partners at advisory firms be proactive by discussing their future plans with key stakeholders long before they plan to retire, and to introduce clients to their future successor so they can get comfortable with that person and help smooth the transition.
That last point is key, says Cerulli, because the valuation of the firm being transferred to the seller is largely based on post-deal client retention.
“It is important not to overlook emotional hurdles, as these frequently sidetrack succession,” Shirk said. “Some advisors struggle to hand their client relationships to someone else.”