RIAs have to try, try again at succession planning–because their first efforts typically don’t succeed, according to a new survey.

According to an online survey of 322 RIAs conducted by FA Insight and TD Ameritrade, only 46 percent of advisors craft successful succession plans on their first attempt. Most firms try at least twice to craft working plans. Thus, advisors need to be flexible when designing and implementing succession plans.

“Finding a succession plan is like going out on first dates,” said Vanessa Oligino, TD Ameritrade Institutional’s director of advisor business performance solutions. “You may have a lot of relationships of shorter or longer duration before you find your one person."

The survey found that 66 percent of firms reported that they had a plan in place, but only 37 percent felt like their plan was adequate. 

Unsuitable successors were cited as a problem by 52 percent of those with inadequate plans. Inadequate financing plagued 17 percent of the plans.

“An adequate plan would work tomorrow, should you need to pull the trigger,” says Oligino. “Many of the plans have been put in place at a specific point in time, but haven’t evolved as the advisor evolved.”

Thirty percent were inadequate for reasons beyond the successor or financing, according to the survey.

Advisors aren't putting enough time into succession planning, said Oligino.

“From our discussion groups, it’s taking somewhere between four and six years to develop a strong plan,” she said. “Advisors need to built relationships between themselves and their successor, and between the successor and their clients.”

Revenue was a reliable predictor of whether a firm had an adequate succession plan in place, according to the survey. Firms with more than $8 million in annual revenues, which TD Ameritrade labels “pacesetter firms,” all had adequate plans. Fewer than 20 percent of  “operator firms” with between $150,000 and $500,000 in annual revenues had an adequate succession plan.

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.

“The advisory practice is like the owner’s baby: They created it, they nurtured it, and over time they grew it,” said Oligino. “They don’t want to bring someone into the firm and hand it over unless there’s an alignment of values.”

Advisors must address four difficult issues in order to put an adequate succession plan in place: prioritize succession planning over other business issues; put in place a team that can sustain the firm; dedicate time and work to continual succession planning; and identify and develop a suitable successor, according to the report.

Another problem faced by baby boomer advisors is that there are not sufficient numbers of younger advisors to replace the waves of advisors expected to retire over the next several years, the authors of the report said.

“Even if the pool of talent coming into the industry is expanded, how many will have the capacity and aspiration and drive to want to become an owner versus being someone who just enjoys financial planning?” asked Oligino.

The survey, in addition to followup interviews and focus groups, was conducted in December.