One Boston-area hybrid RIA believes it has cracked the succession planning code.

Earlier this year, Trust Advisory Group, a $300 million AUM firm based in Woburn, Mass., launched “TAG 2.0,” a program designed to link aging independent advisors possessing smaller books of business with trained next-generation successors to allow them to transition out of their practice at their own pace.

Succession plans remain a troubling blind spot for the financial industry. According to TD Ameritrade’s FA Insight People and Pay 2017 study, only 37% of RIAs reported having an adequate succession plan in place, and throughout the study’s eight-year history the number of firms self-reporting an adequate succession plan has fluctuated between 32% and 43%.

But the problem is much more severe among smaller advisors, said John Cadigan, Trust Advisory Group’s national sales manager.

“Something like 80% of advisors with $50 million or less do not have a succession plan,” he said. “It’s an industry-wide issue, considering that 30% of advisors will age out of the business over the next five to 10 years. It’s almost at a crisis level for the industry in that they’re not prepared for such a demographic shift.”

It has become such an issue that the Securities and Exchange Commission, Finra, the U.S. Department of Labor and some state securities regulators have considered requiring succession planning for advisors. And wirehouses such as Wells Fargo have started rolling out and updating their own succession programs.

According to William McCance, president and CEO of the Trust Advisory Group, TAG 2.0 was born while he was mapping out the future of Trust Advisory Group.

“We have an age problem,” McCance said. “The average advisor is nearing 60 years old in the industry, and in my firm the average age is over 63 years old.”

In recent decades, young people have been hesitant to enter the industry, he said, because of recessions, the bad reputations of many major financial companies and the high salaries and benefits available in the tech industry.

McCance said there are now more advisors over age 70 than there are under age 30.

“If we were to do nothing in a firm like mine, with 115 advisros, eventually we would have no firm,” he said. “Eventually everyone would retire or pass on, and if I have no receptacle to catch their clients I’d have a big issue.”

For many smaller advisors, transitioning out of the business means finding someone to acquire their practice. Yet smaller practices may have difficulty attracting the attention of serial acquirers often associated with private equity backers and very large transactions. With TAG 2.0, Trust Advisory Group joins a growing number of firms using succession planning as an engine for acquisitions.

For its program, Trust Advisory Group has created what it calls the “TAG TEAM” model for succession. The TAG TEAM creates an internal pipeline of junior advisors ready to step into the role of successor.

As part of the transition, Trust Advisory Group purchases the book of business from the established advisor and provides financing for the next-generation advisor’s transition into the business.

The company casts a wide net when looking for potential next-generation advisors.

McCance goes out of his way to hire young people, focusing on individuals between the ages of 25 and 35.

“Millennials are a great opportunity with their knowledge of technology and social media and lifestyles that are very different than our 60-year-old advisors,” he said. “I thought that if we were to create an environment where we took millennials and their knowledge and our old-school customer services and financial planning model, we would have a great advisor.”

Younger advisors are also better positioned to serve the $20 trillion to $30 trillion that will transition to millenials in the coming decades, said McCance.

Trust Advisory Group trains the junior advisors as associates. Training includes education on financial planning, marketing, selling techniques, client service, investing strategies, and product and regulatory compliance.

The training also prepares them for industry-specific exams required by regulators.

“We pay them a living wage while they are taking those exams and getting trained,” said McCance. “Once we get them through that, we take them through extensive courses on estate planning, retirement planning, income planning, investment planning and communications planning.”

Elder advisors ready to plan their transition out of their practice can select their own successor from among the TAG TEAM associates to ensure that the new advisor is compatible.

The outgoing advisor then provides mentorship and a deeper, more specialized level of training for their associate.

The model gives elder advisors the knowledge that their clients will be cared for by a trained, like-minded young advisor and that there will be no breaks in the continuity of client services during the transition.

“Advisors tell us that this is the single biggest business decision they’re going to make,” said Cadigan. “It’s a very emotional process. We’ve come to understand that the money is a part of it, but it’s not the biggest factor. The biggest factor is how are individuals going to treat the clients after they’ve left. They bump into their clients every day and they’ve become friends, [so] did they make the right decision by bringing in the right person?”

Transitioning advisors can choose to leave their practice at their own pace under the model. Under one scenario, TAG 2.0 can serve as a “disaster succession plan” for smaller advisors, said McCance, where Trust Advisory Group would acquire the practice if the senior advisor becomes disabled or dies.

Advisors could also choose to transition their book of business gradually to Trust Advisory Group, said McCance.

The TAG 2.0 initiative is also working to add more diversity to advisory practices. TD Ameritrade’s 2019 FA Insight People and Pay study found that RIAs are reporting that just 5% of their personnel are diverse. To combat the problem, Trust Advisory Group is placing special emphasis on sourcing diverse next-generation talent.

“The industry still doesn’t look attractive to the diverse group we would like to hire,” said McCance. “We still have a lot of work to do on that front.”