Financial Advisors Could Use Help Planning Their Succession

By Cyril Tuohy

InsuranceNewsNet

Financial advisors seem to think highly of their own financial health but they might do well to look in the mirror. For all the time spent advising their clients about the future, it seems advisors could use a little help planning their own successions. We’re not talking about matters of state like the succession plans to the British throne, but we are talking about profitable businesses that quietly generate millions of dollars in annual revenue and which need either to be passed on to the next generation or wound down in a tidy manner.

Could advisors’ neglect of their own futures reflect a case of simple hubris? Or is it that financial advisors prefer building their businesses at all costs, and haven’t yet thought about what to do when the time comes to pass it on?

Tim Minard, senior vice president of distribution at The Principal, allows that there might be an element of advisors not practicing what they preach. “They prefer building the business,” Minard said in an interview with InsuranceNewsNet. Mainly, though, there’s a strain of procrastination in all of us, he acknowledged. Why do today what you can put off until tomorrow?

For advisors, issues surrounding time management and the prioritization of other tasks seem to have taken precedence over succession planning, according to the Principal Financial Well-Being Index of financial advisors.

Only 36 percent of group employee benefit advisors, group retirement advisors and individual retail advisors have created a succession plan. In addition, just 14 percent of advisors belonging to those three groups have had the value of their businesses assessed, the Principal index found.

As many as 59 percent of the 614 respondents in the recent Principal survey said they have neither created a succession plan nor had the value of the business assessed.

A separate study conducted by Matthew Greenwald and Associates for the broker-dealer Signator Investors delivers nearly identical findings.

Although many advisors (56 percent) have a plan to make sure their practice can continue if they are unable to work, only 11 percent have actually completed a succession plan. The Greenwald survey also found that 44 percent of advisors said they’ve thought about making a plan but have not started one, and an additional 12 percent haven’t even started thinking about a plan.

Only one in 10 has a precise estimate of the value of their own practice, the Greenwald survey also found, and 44 percent admit that they don’t have a good estimate of their practice’s value.

“Personally I can see that advisors might consider a succession event to be too far into the future to consider,” said Brian Heapps, president of Signator’s parent company, John Hancock Financial Network. “However, it’s never too early to work on the critical first steps of obtaining a solid valuation for a practice and then considering how best to increase the value and build equity.”

Ironically, advisors seem to find themselves in exactly the same spot as when they try to convince clients to put more money aside for retirement: there’s a lot of talk but not enough action.

In short, here’s one set of procrastinators – advisors – looking to urge on another set of procrastinators – clients.

There’s a way out of this, and it involves killing two birds with one stone: solving the retirement crisis and the succession plan slumber all at once. Advisors, here’s how: your clients should cut a deal with you by agreeing to sock away 15 percent of their earnings in a defined contribution (DC) plan, but only if you promise to go off and develop a succession plan.

Bingo! American retirees would solve their woefully underfunded DC plans, and advisors would be able to secure the future of their trade, which is sorely lacking in new blood.

Done deal! Now it’s time for advisors and clients to go off and walk the walk, not just talk the talk.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].