Clients Most Important Reason for Succession Planning

Satisfying client expectations and the long-term viability of the advisory firms are the top two reasons advisers create a succession plan – personal retirement needs come in third.  

According to a survey conducted by TD Ameritrade Institutional, more independent registered investment advisers (RIAs) are deciding to develop a formal succession plan and most say they will identify an internal successor.

The quarterly survey of 502 RIAs found that 62% of advisers say they have or are in the process of developing a succession plan, up from 43% in 2010. Satisfying client expectations (66%) is the top reason advisers say they have a succession plan, followed by supporting the long-term viability of the firm (51%), and providing a smooth transition into the adviser’s retirement (49%). For those nearing retirement, difficulty identifying an internal successor (53%) and lack of time to develop a plan (21%) were top reasons why they don’t have a solid plan in place.

“With the average age of survey respondents being 54 years, there is clearly an immediate need for formal succession planning,” said George Tamer, director, strategic relationships, TD Ameritrade Institutional. “We’re encouraged by the survey results which show advisers are taking steps to create formal succession plans. They are concerned about who is going to care for the businesses they’ve built and the clients who depend on them.”

Finding an internal successor is the preferred exit strategy for half of advisers, followed by selling the practice (11%), or merging with another firm (8%). Nearly one-third of advisers who report having a succession plan have not decided which succession option they will implement. TD Ameritrade says this finding indicates some advisers see the need to maintain flexibility in their plans and will make the determination closer to retirement.

A majority of RIAs report their retirement timelines are on track (85%). Thirteen percent say they will work longer than expected and only 2% say they will retire early. The top reasons advisers say they’re going to work longer are because they love what they do (34%) and they say their clients need them now more than ever (25%). Half of advisers surveyed plan to retire within the next 15 years, setting the scene for a generational power shift to Gen X and Gen Y advisers.

When asked where they will find the future leaders of their firms, nearly half have current employees in mind and 42% say they will recruit from another advisory firm. RIAs are also looking for leaders in other professions (24%), recent graduates (20%), and career changers (16%). Soft skills such as client service and communication (67%), relationship building (51%), and business development (48%) are valued over technical financial planning (36%) and management skills (22%). Advisers were nearly split on whether the industry is facing a talent shortage – 44 % agreed and 56% disagreed. Two-thirds of advisers said they won’t be hiring in the next 12 months.

When it comes to cultivating current staff, survey results show there is room for improvement in the area of leadership development opportunities for Gen X and Gen Y advisers. Nearly 40% percent of advisers indicated they offered no leadership development opportunities. Even though networking (27%), internships (25%), and mentoring programs (22%) topped the list of professional development opportunities offered by advisers, followed by paid professional development and education (19%) and job shadowing (14%). Nearly two-thirds of advisers offer some kind of mentoring for younger advisers either on a formal or informal basis.

“What attracts, engages and retains talented advisers is different for each generation,” added Tamer. “Financial benefits aside, providing a clear career path, mentoring and opportunities to make an impact on the lives of investor clients can be major motivators for Gen X and Gen Y employees.”

For more tips on succession planning, see “The Importance of Succession Planning.”