Most RIAs Lack Formal Succession Plan

While most surveyed registered investment advisers (RIAs) said succession planning is important to their clients, less than half of RIAs have a formal plan.

The quarterly survey of RIAs by TD AMERITRADE Institutional found that more than half (57%) of RIAs reported not having a formal succession plan or business valuation (88%) in place—despite the average age of respondents being older than 50. Thirty-nine percent of advisers reported they do have a succession plan and 4% said they are developing one.

Advisers who do have a formal succession plan most commonly plan to transition their firms internally to a key employee or a group of employees (49%), followed by selling the practice and exiting the business or merging with another firm (18%). Almost a third (29%) has not decided what type of succession option they will implement.

Having a key employee to pass a book of business to is important, the survey suggested. Finding a qualified candidate to transition their business to is the number one reason those who don’t have a succession plan said they don’t have a plan (42%), according to the survey.

The other top reasons advisers don’t have a succession plan include not believing a succession plan is important at this career stage (32%) and lack of time to develop a plan (20%).

The top five reasons surveyed advisers cited for having a formal succession plan include supporting the long-term viability of the firm (57%); satisfying client expectations that a succession plan is in place (52%); providing a smooth transition into retirement (36%); providing continuity for employees (36%) and enhancing the valuation of the firm (32%).

“While some advisers may not be ready to sell or exit the business, anticipating the unexpected and putting a plan in place for the future can help put employees and clients at ease while positioning for the long-term viability of the business,” said Mike Watson, director of practice management, TD AMERITRADE Institutional, in a news release.

Nearly half of surveyed RIAs said they know the value of their firm (48%), but only 12% said they had a formal valuation completed in the last 12 months.

Most respondents (61%) said building a wealthier book-of-business is the common path to higher valuation. RIAs also look to improve firm valuation over the next 12 months by improving staff skills (28%), adding staff (26%), implementing a marketing plan (48%), improving operational efficiency (40%) and investing in technology (38%), according to the survey.

TD AMERITRADE surveyed 500 advisers.