Financial advisors have made little headway in their succession planning efforts over the last three years, according to a study released Wednesday by the Financial Planning Association.
Although many advisors are aging out of the financial business, 73 percent of them don’t have a written succession plan, and 60 percent of those within five years of retirement don’t have a plan in place, according to the study. Forty-eight percent of those five to 10 years away from retirement lack a plan.
The numbers have remained steady since a similar study was done three years ago, the FPA said.
An even earlier survey shows that financial advisors have historically been bad at planning for themselves.
The study, “The Succession Challenge 2018: Why Financial Advisors are Failing to Plan for the Inevitable,” surveyed 309 independent RIAs and advisory team members and found that a majority of advisors continue to fail to plan for who will take over their practices when they leave.
Smaller firms are in even worse shape than large firms, according to the study. Only 13 percent of firms with less than $50 million in assets under management have a succession plan, compared with 60 percent of those with more than $500 million in assets under management.
This is despite the fact that 95 percent of advisors acknowledge there is a risk in not having a plan.
“Succession planning is critical for financial advisors,” said Frank Paré, the FPA’s president, in a statement. “Not just for the benefit of clients so they know they will be taken care of when their advisor retires, but for the benefit of those on the advisor’s team who need to know how they will be impacted when the senior advisor or principal decides to retire.”
He added, “It’s clear from the research that while we know we need to take the steps necessary to develop a plan, some of us struggle with how to approach it or have significant personal obstacles that might impact our ability to get the planning done.”
One of the reasons advisors have no plan is that they don’t know exactly how or when they will leave the business. Eleven percent of those in the study said they have a clear plan for departure and another 29 percent said they were somewhat sure. The rest had not decided. More than half of the advisors said they feared the business would not be as successful without them, while others had not found the right successor.