Succession Planning for Financial Advisors

Now it's Your Turn

You’ve spent a career helping clients prepare for retirement. But have you taken the time to think about your own? Industry-wide, the shockwaves are forthcoming:

  • More than a third of financial advisors are planning to leave the business over the next 10 years.
  • More than $2.3 trillion in assets are managed by advisors who are 60 and older.
  • Less than 25% of these advisors have any sort of succession plan in place.1

Without a succession plan, not only do advisors leave clients feeling vulnerable, they also miss potentially beneficial opportunities. But when handled with thought and foresight, an advisor’s retirement can maintain a lifelong professional reputation, do right by clients and colleagues, and even generate post-retirement income.

It has always been about relationships.

The “normal” process of retirement, whether voluntary or involuntary, is a tale as old as time: A decision is made, an announcement is made, a party is thrown, some gifts are exchanged, and’s over. The following Monday morning, one no longer goes to work, old colleagues are seen no more, one’s lifestyle has completely changed. This emotional transition and its effect are explored in CUNA Brokerage Services, Inc. (CBSI)’s whitepaper, The Psychological Impact of Retirement.

However, the potential retirement experience of a financial advisor can be fundamentally different. Since advisors function more like independent business owners, they build relationships over time that can become particularly deep. With each visit and interaction, successful advisors find true satisfaction not so much in managing investments for their clients, but in cultivating the relationships. They see the excitement of a young couple buying a house. They watch their clients’ children grow up and begin their adult lives. They see their communities grow. They cherish the success stories. When the time comes to consider retirement, these close ties can create a transition — both financial as well as emotional — that impacts far more than just the retiring advisor.

In short, you’d tell your clients to start planning now. You should do the same.

When clients know their advisor’s plan for transition to retirement, their confidence in the relationship — as well as a new relationship with the advisor’s successor — is much more likely. Conversely, if an advisor is nearing a perceived “retirement-friendly” age and clients are left in the dark about the future, a clear message is sent: Seek alternatives now and find a new advisor. This is neither good for you, or for your client, or for your financial institution and its leadership.

That’s precisely why having a clearly defined succession plan helps ensure advisors maintain both business and personal relationships as they transition. Maintaining this value, defined by actual dollars as well as goodwill, is the key to a successful and distinguished retirement. On the other hand, some advisors choose to wind down their practices as they age, gradually losing clients until none remains. The result is the total elimination of relationships and any potential profit in selling or transitioning out of the practice.When clients know their advisor’s plan for transition to retirement, their confidence in the relationship — as well as a new relationship with the advisor’s successor — is much more likely.

Leaving a legacy begins with a Clients-First perspective.

The financial industry is facing a potential shortfall of more than 200,000 advisors by the year 2022.2 In 2017, that prediction grows closer daily, and current advisors — especially those within 15 years of leaving their practice — have the difficult job of finding someone suitable to take over their practices. If advisors do not make it a priority to recruit and train new advisors in the interim, the basic supplyand-demand economics of an industry shortage could make retirement a complicated task. Conversely, according to tenured CBSI advisor Juanita McCormick, retiring without a plan in place is simply not an option. “I think we owe it to our clients to be there for them — we tell them that we will be,” says McCormick. “If one day we up and say, ‘Oh, by the way, I’m retiring, good luck,’ then we didn’t really honor our word.”3

The sooner an advisor outlines a transition and puts it into practice, the less disruptive the event will be for clients and the institution. Perhaps the essential component of a successful end to a career is simply this: Just as advisors continually urge clients to carefully plan and consider the many aspects of retirement, it’s time for advisors to take their own advice.

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1 Hanson, Joyce. “One-third of advisors plan to exit business within a decade”. February 3, 2014. Web. August 1, 2016. 2 Butcher, Dan. “What’s the problem with succession planning for financial advisors?” Efinancial careers. January 4, 2016. Web. March 20, 2017. 3 McCormick, Juanita. Personal interview. June 30, 2016