It’s time for thousands of aging advisors to make some hard choices: to sell their firms, cut back or incorporate younger leadership into their practices.

These are the issues facing some of the most successful people in the advisory business over the next few years.

Should these veteran advisors—most of whom are in their 50s or 60s or older, who have been in the business for decades—rebuild a practice, one whose average clients are also likely aging and who often want to know what will happen to them if the advisor retires? Or should the advisors sell or bring in younger leadership?

Should they recognize that their most productive years are behind them, and accept a lesser role in their firms? Should they find a way to tap into the equity of their firms now, while they still can, making a commitment to a young partner to retire in a set number of years?

The Survivors

“The average advisor has spent a lot of years in this business, and being able to survive he or she has generally done very well,” says Bill Butterfield, a senior analyst with Aite Group. He notes most advisors are in their 50s. The average advisor is about 51, he says, and needs to consider retirement and succession issues.

“The best age for financial advisors to retire is at age 59 because they have peaked in terms of their business growth rate,” says David Grau, the founder of FP Transitions—a firm that helps financial professionals analyze the worth of a business and formalize transitions.

Some note the potential problems created by this aging of the industry.

“Many of them haven’t saved enough or have been divorced and need the income. But they put off the decision to sell for too long,” says Douglas Kreft, FP Transitions’ vice president of sales and services.

“Sometimes they bring in someone with the promise of eventually taking over the firm, but that never seems to happen because many advisors love the advisory lifestyle,” Kreft says.

Meanwhile, he adds, many clients worry about aging advisors who they will likely outlive and wonder if the advisor is still as effective as he or she once was.

“Trade Him Now!”

Branch Rickey, the legendary co-owner of the Brooklyn Dodgers, famously said, in ensuring that a team realized the ultimate value of a player, that it was better to trade a player a year early rather than a year late. A veteran observer of the advisory industry posits a similar rule.

Apparently, there’s lots of work to do. That’s because about 40 percent of advisors thinking about retirement do not have a succession plan, according to a 2012 study by Aite Group. But FP Transitions says the percentage is much higher than that, and that many advisors have a problem planning their personal future. They have spent so much time figuring out client retirement plans that many haven’t considered their own or how they will ever cash in the equity in their businesses.

In the meantime, they are missing potential problems around them. They have not given consideration to the long-term trends that could be endangering their businesses and their equity, industry observers say.

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