Ce­ment­ing a Fu­ture Gen­er­a­tion

Not plan­ning for suc­ces­sion is the big­gest risk that ad­vi­sors can take.

Financial Planning - - CONTENTS - BY MATT SONNEN

Not plan­ning for suc­ces­sion is the big­gest risk that ad­vi­sors can take.

Although the drum­beat for suc­ces­sion plan­ning has been get­ting louder over the years, the in­dus­try con­tin­ues to re­main woe­fully un­pre­pared.

We have all seen the head­lines scream­ing about the more than two-thirds of ad­vi­sors who don’t have suc­ces­sion plans, yet the av­er­age age of those ad­vi­sor prin­ci­pals who are own­ers is get­ting closer to 60.

Clearly, there is a wide gap here, yet for many ad­vi­sors, they aren’t feel­ing the ur­gency to groom the next gen­er­a­tion to take over. Th­ese ad­vi­sor-own­ers tell us that they aren’t con­cerned, haven’t found the right suc­ces­sor or sim­ply want to keep the sta­tus quo.

What many of th­ese ad­vi­sor-own­ers aren’t think­ing about is a new in­dus­try trend that has been named Break­away Ad­vi­sor Move­ment, Ver­sion 3.0, and it has mas­sive im­pli­ca­tions for ramp­ing up the ur­gency for suc­ces­sion plan­ning.

The first break­away move­ment be­gan more than 20 years ago and con­tin­ues as cap­tive wire­house ad­vi­sors leave their em­ploy­ers for a bet­ter way to run their busi­nesses as regis­tered in­vest­ment ad­vi­sors. To help fa­cil­i­tate th­ese break­aways, a cot­tage in­dus­try of ag­gre­ga­tors and roll-ups came on the scene to pro­vide start-up cap­i­tal and tran­si­tion as­sis­tance for an eq­uity stake or con­tin­u­ing ba­sis points in the newly es­tab­lished firms.

As th­ese RIA firms ma­tured, they quickly re­al­ized that they had the ex­pe­ri­ence and scale to repli­cate th­ese plat­forms on their own at a much lower cost, and many have since bro­ken away from th­ese ser­vice providers. This re­al­iza­tion by ad­vi­sors led to Break­away Ad­vi­sor Move­ment, Ver­sion 2.0.

In a sim­i­lar fash­ion, ex­ist­ing RIAS are start­ing to see an­other wave of break­aways among the younger, more en­tre­pre­neur­ial em­ploy­ees at their firms. Th­ese up and com­ers, who are won­der­ing what fu­ture they will have at their firms, are also be­gin­ning to say to them­selves, “There has to be a bet­ter way” and are look­ing to start their own RIAS in di­rect com­pe­ti­tion with the firms that they are leav­ing.

Most of this is driven by the firm’s lack of suc­ces­sion plan­ning and the younger em­ploy­ees feel­ing as if they will never get a mean­ing­ful piece of the own­er­ship pie. As a re­sult, th­ese en­tre­pre­neur­ial ad­vi­sors who have learned the RIA craft see that, due to the owner’s lack of plan­ning, their only op­tion is to break away, tak­ing their busi­ness de­vel­op­ment, re­la­tion­ships and tech­nol­ogy-savvy skills with them.

When this hap­pens, the ag­ing ad­vi­sor’s firm’s val­u­a­tion takes a big hit. After all, what is left to ac­quire in a firm that is los­ing its best tal­ent and client re­la­tion­ships?

Ad­vi­sors who haven’t ce­mented a fu­ture gen­er­a­tion of lead­ers are at ex­treme risk of not be­ing able to mon­e­tize their decades of hard work.

Suc­ces­sion plan­ning isn’t easy. How­ever, not plan­ning is the big­gest risk that ad­vi­sors can take as they con­sider their re­tire­ment fu­tures.

The good news is that there is still time, but it is rapidly run­ning out as Break­away Move­ment, Ver­sion 3.0 gains mo­men­tum. Ad­vi­sors owe it to them­selves, their firms and their clients to build a ca­reer track for the next gen­er­a­tion of ad­vi­sors to play a mean­ing­ful role in the fu­ture of their busi­nesses.

For pre­pared firms, this process is a healthy one that brings needed vi­tal­ity into the busi­ness while richly re­ward­ing the founders.

(A ver­sion of this story orig­i­nally ran on fi­nan­cial-plan­ning.com in May 2017.) FP

Source: Fi­nan­cial Plan­ning As­so­ci­a­tion, 2018

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