With Succession Planning, Advisors Aren’t Using Their Own Advice

Like doctors reluctant to swallow their own medicine, financial advisors will structure succession plans for clients, but don't ask advisors to draw one up for themselves.

“Every day we talk to clients about navigating the same thing – about retiring, or letting go of the thing that they used to do every day that gave them so much pleasure,” said Evelyn Zohlen, president and founder of Inspired Financial. “We can tell them what to do, and yet we have a hard time taking our own medicine."

Sound succession strategies mitigate risk, preempt compliance challenges, retain employees and clients, secure a firm’s legacy, gives owners options and delivers more value to clients, a new report from TD Ameritrade.

Yet a surprising number of financial advisors don’t have a solid succession plan in an industry grappling with how to replace aging advisors with new blood, the TD Ameritrade 2017 FA Insights Succession Planning Survey of 322 RIAs found.

Only about one-third of financial advisors have what they consider to be an adequate succession plan in place, but at the same time about one-third of all financial advisors plan to retire at some point in the next 10 years.

The irony of advisors not doing for themselves what they do for others isn’t unique to financial advisors, so what’s preventing advisors in particular from coming up with a plan?

Excuses, Excuses …

Some advisors fear their clients might be underserved by a successor as a reason to table succession planning, other advisors say they have no plans to retire soon, still others prevaricate unsure of the value of their business were they to sell to outside buyers.

“The fear of the unknown can be paralyzing,” said Kathy D. Guerin, president and founder of Envision Wealth Advisors. “There are so many options to consider when it comes to succession – it’s the largest transaction I will ever go through and the most emotionally involved.”

But waiting until the founder of an advisory approaches retirement to draw up a plan misses the point – a plan should be in place long before that, even if implemented in stages.

“A piece of a plan is better than no plan,” said Lee DeLorenzo, founder and president of United Wealth Planning.

Succession plans secure a bulwark against any adversity – sudden death, debilitating illness, disability, financial hardship, or any other unforeseen challenge.

Waiting until a crisis to trigger a succession plan is often too late.

If Weinstein Co. had a succession plan in place when the sex scandal involving its founder and former CEO Harvey Weinstein exploded into public view last year, perhaps the company would not have had to declare bankruptcy.

“Advisors must stop thinking that succession planning is limited to charting out a course toward their own golden retirement years because that's simply not the case,” said Vanessa Oligino, TD Ameritrade Institutional’s director of Advisor Business Performance Solutions.

Firms Most at Risk

Without an adequate succession plan all firms are at risk, but owner-operator advisors with between $150,000 and $500,000 in annual revenue are at highest risk.

Only 20 percent of small firms are prepared from a succession-planning perspective, while 100 percent of firms with $8 million or more in annual revenue are prepared with an adequate succession plan, the TD Ameritrade report found.

Advisors are four times more likely to choose an internal successor over a merger, an acquisition, an outright sale or closing the firm.

Smaller advisories are more open to outsiders because small firms have a thinner talent pool of internal candidates to choose from, the report found.

The survey found that:

• 13 percent of advisors had no succession plan and weren’t preparing one.
• 21 percent had no plan but were preparing one
• 12 percent said their plan lacked a suitable successor.
• 10 percent lacked buy-in financing.
• 7 percent said the plan was inadequate for other reasons.
• 20 percent said the plan was adequate but was awaiting implementation.
• 17 percent had an adequate plan and that implementation was under way.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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