Practice Management

Planning for an Unexpected Ownership Transition

It’s an important question for advisory firm owners to ask, says Independent Financial Partners CEO William Hamm, Jr.: What happens to my clients if I have to quit working unexpectedly?

By John Manganaro editors@assetinternational.com | September 22, 2014
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Hamm says he hears the question often from advisory firms looking to join the Independent Financial Partners (IFP) network, which is supported by broker/dealer LPL Financial. Hamm says IFP currently serves about 500 advisers across the U.S. through nearly 40 support staff members. The network includes some 180 retirement specialists who oversee a majority of the network’s assets under advisement. As Hamm explains, firms joining the IFP network maintain independent ownership and operations while gaining access to a variety of support staff and new compliance and service delivery tools that can improve practice efficiency.

“The succession issue is absolutely on our radar as an advisory network,” Hamm tells PLANADVISER. “In fact it’s one of our top business priorities for this year—developing succession plans for all of our advisers. We have quite a few that have their own arrangements with their service providers, but we believe it’s important for every adviser to have an actionable plan in place.”

This is likely to be a challenge, Hamm admits. Recent research from CLS Investments suggests a scant 28.7% of advisory firm owners have defined a formal succession plan for the case of an unexpected death or disability.

Hamm says the budding interest in succession planning is in large part derived from the aging nature of the financial advisory industry—he cites the average age of financial advisers as about 56, a figure just a few years higher than that established by recent industry-wide research. For example, a Cerulli Associates report published earlier this year pinned the average age of financial advisers at about 51. The report shows some 43% of percent of advisers are over age 55, however, with nearly one-third between 55 and 64.

Advisers also appear to be more aware of the potential fiduciary and litigation risk associated with operating an advisory practice without an actionable succession plan in place, Hamm adds. Besides the compliance and risk management aspects, having an intelligent succession plan in place can help an adviser maximize the value of their practice and reduce uncertainty during an unexpected ownership transition.