A survey of independent advisors in the U.S. finds that almost two thirds of them have, or are working on, plans for their retirement from the business.
The latest quarterly survey of independent registered investment advisors from TD Ameritrade Institutional finds that 62% of advisors say they have, or are in the process of developing, a succession plan. This is up sharply from just 43% in 2010.
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The survey found that ‘satisfying client expectations’ is the top reason advisors say they have a succession plan (cited by 66%), followed by ‘supporting the long-term viability of the firm’ (51%), and ‘providing a smooth transition into their retirement’ (49%). For advisors nearing retirement without a plan, ‘difficulty identifying an internal successor’ (53%) and ‘lack of time to develop’ a plan (21%) were cited as the top reasons.
“With the average age of survey respondents being 54 years, there is clearly an immediate need for formal succession planning,” said George Tamer, director, strategic relationships, TD Ameritrade Institutional. “We’re encouraged by the survey results which show advisors are taking steps to create formal succession plans. They are concerned about who is going to care for the businesses they’ve built and the clients who depend on them.”
The survey reports that finding an internal successor is by far the preferred exit strategy, cited by half of advisors, followed by selling the practice (11%), or merging with another firm (8%). Nearly a third of advisors who report having a succession plan have not decided which succession option they will implement, it says.
Half of the advisors surveyed plan to retire within the next 15 years, which, it notes, is setting the scene for a generational power shift to Gen X and Gen Y advisors.
“Turning the reins over to the next generation is critical to the long term viability of a firm. A firm with an aging client base may suffer from a lower valuation and should consider attracting younger advisors and younger investors to establish a lasting legacy,” said Tamer. “In order to successfully transition the business, the Boomer generation should consider taking steps to cultivate leaders within their organization and relinquish some control over day-to-day business activities.”
When asked where they will find the future leaders of their firms, nearly half of survey respondents say they have current employees in mind, and 42% say they will recruit from another firm. They also said that soft skills, such as client service and communication (67%), relationship building (51%) and business development (48%), are valued over technical financial planning (36%) and management skills (22%).
When it comes to cultivating current staff, TD reports that the survey results show there is room for improvement in the area of leadership development opportunities for Gen X and Gen Y advisors. It says nearly 40% of advisors indicated they offered no leadership development opportunities. Networking (27%), internships (25%) and mentoring programs (22%) topped the list of professional development opportunities offered by advisors, followed by paid professional development and education (19%) and job shadowing (14%). Nearly two-thirds of advisors offer some kind of mentoring for younger advisors.
“What attracts, engages and retains talented advisors is different for each generation,” added Tamer. “Financial benefits aside, providing a clear career path, mentoring and opportunities to make an impact on the lives of investor clients can be major motivators for Gen X and Gen Y employees.”
The results are based on a survey conducted by Maritz, Inc. on behalf of TD Ameritrade Institutional. Over 500 RIAs participated in a telephone survey from August 15-26. The margin of error in the survey is ±4.4%.