As advisors continue to age, those surveyed for the Brokerage Report Card are recognizing in greater numbers that retirement is a fast-approaching reality. Thus, they have begun to place a higher value on having documented succession plans in place and, in particular, on their firm assisting them through the succession-planning process.
Of the 608 advisors surveyed for this year’s Report Card, 82% reported they did not have a documented succession plan in place, a slight rise from the 80% who did not have such a plan last year. But a more notable change is that the percentage of advisors who are aware that their firm offers a succession program has increased to 89% from 83% last year.
Although many advisors say they aren’t ready to retire, they acknowledge retirement is a reality they must eventually face – and it’s something they are looking at more closely. That’s not surprising, given that the average age of advisors surveyed has risen to 48.2 from 47.6 year-over-year.
“[I] need to look into this, [so my business] isn’t scattered to the winds,” says an advisor in British Columbia with Toronto-based TD Waterhouse Private Investment Advice who’s in his early 60s and has yet to put a documented succession plan in place.
This attitude is reflected in the numbers. On average, advisors ranked the importance of “firm’s succession program for advisors” at 8.3, up slightly from 8.2 in 2011.
A closer look reveals that advisors with Toronto-based Richardson GMP Ltd. and Calgary-based Leede Financial Markets Inc. rated the importance of the category higher than the survey average by a full point or more.
And the firms that received the highest performance ratings in the succession-program category – Richardson GMP, Toronto-based Raymond James Ltd., Toronto-based CIBC Wood Gundy and Montreal-based National Bank Financial Ltd. – actively walk their advisors through the succession-planning process. Advisors at these firms describe management as “flexible” and “fair” in both how they value advisors’ books of business and in helping advisors choose their successors.
Richardson GMP advisors are happy with the firm’s approach of delivering the necessary financial and legal advice during a transition and providing document templates for outlining the mechanics of a succession agreement.
Raymond James takes the succession-planning process a step further. This firm actually buys the retiring advisor’s book on behalf of the successor and then arranges a payment plan with the successor to pay it back.
“[The firm] will help buy the book,” says an advisor with Raymond James in B.C. “It’s comprehensive; they help out both sides.”
NBF saw the biggest improvement in the succession-planning category, with its rating rising to 8.2 from 7.5 last year. Advisors have responded well to changes relating to the structure of the succession-planning program, in which the firm provides a menu of transition options, depending on whether the advisor is operating on his or her own or in a team.
In addition, regional managers at NBF supervise each transition. In particular, they approve the valuation of the advisor’s business and play matchmaker between buyers and sellers.
“We want to make sure the process is seamless,” says Martin Lavigne, president of NBF’s wealth-management division, “and that the person taking over the book is capable of serving the clients [he or she] is getting.”
But advisors with other bank-owned dealers say their firms have some work to do in the succession-planning area. In fact, advisors with TD Waterhouse and Toronto-based ScotiaMcLeod Inc. and BMO Nesbitt Burns Inc. feel that their firms’ succession programs are too restrictive.
In particular, some firms exert a large degree of control over how a successor can be chosen and how much a book of business can be valued at. Says an advisor with Nesbitt in Ontario: “They don’t fairly value your book. They tie you in with them. It’s not flexible.”
In turn, Nesbitt executives say strong parameters for succession plans – specifically, the choice of sale price and successor – are the key to successful transitions.
“In the case of the transition of a business from one advisor to another or within a team, we certainly provide guidelines,” says Bill Brown, Nesbitt’s national sales manager. “We want to make sure we have investment advisors who are there to step in and do a good job for our clients.”
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