40% of Advisors Set to Retire In the Next 5 Years

The financial advisor industry is rapidly approaching the crest of its retirement wave, yet many advisors nearing retirement don’t have a succession plan in place.

Industry research shows that four out of ten advisors will retire in the next 5-7 years, while some broker dealers report that nearly half of their advisors will retire in five years or less. Less than 20% of these advisors have a succession plan in place.

Why it matters: Without a succession plan, advisors put their practice and themselves at great financial risk and limit their options for how and when they execute their transition.

• Lack Of Succession Experience: For many advisors selling their practice is a once in a lifetime event. As a result, they lack the experience and knowledge to do it well.
• Practice Value Often Declines With Age: Without steady growth, practice value naturally peaks and rapidly declines as the practice’s average client age reaches 70. Since most advisors are similar in age to their clients, this risk increases as the advisor nears retirement age.
• Finding a Successor Takes Time: It takes time to find a right fit successor, whether through and external buyer or an internal partner or Associate Advisor.
• Smooth Transitions Are an Art Form: Transitioning a practice to the new advisor also takes time, generally six to twelve months. This is on top of the months or even years it can take to find and cultivate a worthy successor. Additionally, a successful transition is often gauged by the client attrition rate. Careful planning and support during this phase ensure a better client experience, less attrition risk, and more money for the selling advisor if an attrition clause is in place.

Actions retiring advisors should take.

• Start Now: As mentioned above, succession planning takes time. Having a plan in place that includes contingencies for triggering events also ensures that your practice and loved ones are protected in the event of your sudden death or disability.
• Know Your Practice Value So You Can Manage Equity: The first step is to secure a practice valuation, one that looks at both the quality of your book and the operational health of your practice. This will help you gauge price for a potential sale, as well as identify what actions you can take now to preserve or even grow practice value ahead of your succession date.
• Leverage Succession Experts: Your succession is one of the greatest milestones of your career. Coupled with the fact that your practice is one of the largest assets you own, its critical to utilize the expertise, processes, and resources of an experienced succession consultant. They can not only help you identify blind spots and address any risks or opportunities to your succession, but they can also serve as a stable guide and confidant as you navigate the emotional side of planning your succession.
• Define your Succession and Legacy Vision: Start crafting a statement that outlines what a successful outcome looks like for your transition as well as the legacy you hope to leave behind. It’s also beneficial to start thinking about what’s next so that you have a positive vision of what you are working toward post succession.

Actions advisors looking to grow through acquisitions should take.

• Get Connected: Most practice sales never hit the open market. Those that do are inundated with interested buyers. To increase your opportunities, build relationships with tenured advisors in your area, with field leaders at your BD or Custodian, and with recruiters and consultants.
• Strengthen Your Buyer Position: Develop your value proposition as a buyer by articulating your client experience and service model, as well as your team culture and opportunities for staff at the acquired practice. It’s also important to identify what mechanisms you have in place to onboard an acquisition and how you will scale to meet the needs of the additional 100-200 clients gained from a typical acquisition.
• Build A Lending Relationship: Ensure you can close on a deal by building relationships with specialty lenders who serve financial advisors and/or financing programs at your firm. Many acquisition loans have requirements that must be represented in the deal terms. This is important to know before negotiations begin.
• Secure Deal Support: Many buyers lock themselves into bad deals if they proceed without expert guidance. An experienced M&A Consultant can not only help you structure the deal and develop deal terms, they can also help you navigate the seller's emotions and guide you through a smooth transition.