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Most financial advisors are in the twilight years of their careers. Over the next 10 years, more than 100,000 advisors, or about one-third of the advisor population, will be retiring. Age-related attrition is normal. It happens in every profession. The alarming part for our profession is that those retiring advisors are not being replaced. If we look back 25 years, there were on average 30,000 people sitting every year for the series 7 examination to become a financial advisor. Today, that number is closer to 5,000, and most applicants are taking the exam with the goal of becoming registered assistants, not financial advisors.
In 2018, a survey by the Financial Planning Association found that only 27% of advisors had a succession plan or any formal preparations to transition their practice, although that number has risen recently, perhaps as a response to COVID mortality. In another survey, conducted earlier this year by SmartAsset, among 460 advisors on its platform, another 38% had formed succession plans in the last few years, bringing the total percentage of advisors with a succession plan up to 64.4%. That’s an improvement, but it also means that more than a third of advisors, professionals who dispense planning advice every day, still haven’t planned for themselves.
What will happen to the clients of those advisors who don’t have a formal succession plan in place? The best-case scenario is that they will have to start all over again with a new advisor who doesn’t know them or their goals and aspirations.
Partners provide succession and more
I’m 68 and know from experience that as advisors age, clients raise concerns about what will happen to them when they retire and leave the profession. It happened in a recent meeting with a 65-year-old client who is thinking about retiring. He said, “We’re talking about a plan that will take me into my 90s, who’s going to be here to help me?”
I turned and pointed to my partners, a woman in her 50s and man in his 40s. For us, partnership was the solution to the succession problem that will allow our business to continue, regardless of what happens to us as individuals.
But there are numerous other reasons than succession planning to partner up with other advisors. The foremost is that a partnership is better for your clients because each partner brings a different set of talents and experience to the table. Having a partner in the room when you meet with clients increases your ability to build deeper connections. Partners bring different points of view into the discussion that enrich the overall conversation, as well as increase the possibility and depth of client connections.
Another advantage of a partnership for clients concerns the issue of coverage. If one partner is sick or on vacation, there’s somebody else picking up the slack who knows and understands the client. There’s always someone on the other end of the phone when a client calls.
Having partners means you don’t have to have all the answers yourself. It gives you respected peers to bounce your ideas off, and someone who will challenge your ideas, which is a good thing. It also means there are additional people to reach out to current and prospective clients, giving you a greater ability to build and grow your business, while also making sure clients are well taken care of.
Succession planning is an ongoing process
Like the financial plans we draw up for clients, succession is not a set-it-and-forget-it proposition. The plan you put in place now might not work well 10 years down the line. My initial partner and I met originally at a wirehouse, where I was the trainer and he the trainee. He joined my team in 2009, and we’ve been partners ever since, later moving together to another wirehouse, and eventually to our current independent status. Our third partner is a woman who joined us in 2014, with 10 years of experience in client service. She brings an additional perspective that clients appreciate, particularly women.
It’s very important to have partners who are of different ages to provide the continuity of service that clients deserve. I love working with clients and don’t plan on retiring any time soon. But at the same time, in five years, I’ll be 73 and will probably start slowing down. So, we’re already planning for what happens next. Sometime soon, we’ll be in the process of looking for another partner, somebody younger that the existing partners can train and integrate into our client relationships. It’s all part of our plan to keep this business growing and keep it intact at the same time.
Clients also need succession planning
In addition to succession planning for our own businesses, advisors also should be educating clients about family succession. A tremendous wealth transfer will be taking place in the next few years, and it’s important that we help our clients prepare for it. As the advisor population is aging, so are our clients and part of our job is seeing that their next generation is prepared for it.
When I have that conversation with my older clients, I rhetorically ask, “Do you know the difference between smart money and stupid money?” I tell them that smart money is the money they have earned and put aside to build a nest egg.
But, if they haven’t prepared their heirs in the next generation, that smart money will quickly become stupid money after the reading of the will. We need to educate the next generation, so they understand where that money came from and the importance of it, so it doesn’t become stupid money. When put in those terms, it’s a conversation that really resonates with clients.
Succession planning and partnership dovetail together nicely. The shrinking of the advisor population in the next decade, when people are likely to need professional advice more than ever, is a reality. Partnership is one way to address both issues while also ensuring continuity of service for clients, and peace of mind for the advisor.
Robert Baker is partner, managing director and wealth manager at The Baker Sarama Wealth Management Group of Steward Partners.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
