Succession...

 In 2024, the average age of financial advisors nationwide was 56 according to Cerulli Associates. Further, 20% of advisors indicate they will retire over the next 5 years and 33% during the next 10 years. Advisors over age 55, 42% of all advisors, manage 57% of assets across all channels. 

To the advisor, succession planning should be a critical business strategy that helps protect their practice, clients and loved ones. A comprehensive succession plan outlines the steps required to transfer ownership, responsibilities, and client relationships to the next generation of advisors. It also includes a timeline, communication strategy, and planned details on compensation and benefits. 

Anticipating a third of their associated advisors retiring in the next 10 years, life insurers and annuity companies need to understand how the advisor distribution market will evolve. Elements of this understanding include how they plan to exit their practices. Do they have a plan? Did their supervising organization help them form a plan? If not, who did? How will they execute the plan? Are they looking to sell their practice? Perhaps pass it on to a junior, peer, or partner advisor in a buy-out? In addition, how will their practice change?

Here’s a look at the current state of succession planning in the financial advisory industry:

The Succession Planning Gap

• Studies show that a significant number of financial advisors do not have a formal succession plan.

• Many solo practitioners, in particular, struggle to develop a transition strategy.

• Some hesitate due to emotional ties to their business, while others lack a suitable successor.

Common Succession Strategies

• Internal Succession: Training junior advisors to take over.

• Mergers & Acquisitions: Selling the firm to a larger practice or merging with another.

• Gradual Transition: Reducing workload while introducing new leadership over time.

• Family Succession: Passing the firm to a family member.

Challenges in Succession Planning

• Finding the Right Successor: Ensuring they align with the firm's values and client needs.

• Valuing the Business: Determining a fair market price for the transition.

• Client Retention: Ensuring clients trust the new advisor.

• Regulatory & Compliance Issues: Navigating legal and financial hurdles.

The Future of Succession Planning

• As financial planners age, more firms are adopting formalized transition plans.

• The rise of aggregator firms and succession planning consultants is helping to bridge the gap.

• Technology and remote advising have created new models for transitioning client relationships.

We've done some work in this area and would be happy to discuss some of our learnings.