Larger firms with multiple stakeholders were more likely to have the drive and the resources to draft and update a plan, according to the survey report.
Advisors are also waiting too long to start succession planning, especially smaller advisors, said Oligino.
“It pays off to start succession planning while young,” she said. “If advisors wait to long, there will be a smaller potential group of people available for them to choose from for an internal succession. We think succession planning should be thought of as part of a human capital strategy–what sort of people does an advisor need to bring in as they grow, and who among those people could grow into a potential successor?”
FA Insight referred to a major blind spot in most advisor succession planning: Succession plans tend to address the retirement of a founder or the exit of a principal, yet most advisory practices have multiple business-critical roles that should be addressed by succession planning.
While 58 percent of the respondents with a plan had succession plans for their principals and founders, only 39 percent had planned for other revenue-generating personnel. The same number, 39 percent, had planned for the succession of operational support personnel.
Firms should address what would happen if an operations manager or information officer chose to leave early to pursue other opportunities, said Oligino.
“Advisors need to have someone in the wings who can cover the business critical responsibilities within their firm,” she said. “Otherwise, the destruction can be significant, especially if someone vacates a revenue-generating role.”
Advisors still generally prefer to develop their own successor within their firm. Among the survey’s respondents, 69 percent favored an internal succession plan, while 9 percent said that they planned to sell to an external buyer. Six percent said they were planning to merge into or acquire another firm. Just one percent of TD Ameritrade’s respondents said that they would close their firm upon retirement.
Among firms with a succession plan, 80 percent favored internal succession.
Advisors named four primary obstacles to succession planning: Concern that their clients won’t be adequately cared for after they retire; the feeling that there’s no need for a plan because they’re not retiring in the near future; worries that their successor won’t do as good a job; and uncertainty regarding how to realize the full equity of their firm.