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.