Given the results of this year’s Brokerage Report Card, succession planning is a growing priority for investment advisors. At all but one investment dealer, advisors rated the category higher in importance this year than previously — in most cases, by a significant margin.
Overall, advisors rated the importance of their firms’ succession program at 8.1 — a 0.7-point rise from 7.4 in 2008. So, it’s no surprise that advisors are more closely scrutinizing their firm’s succession-planning programs. And this year’s survey reveals that dealers are, at a minimum, meeting these heightened expectations.
Although the overall average performance score for succession planning increased minimally, five firms saw their ratings rise by half a point or more. And, like last year, the category’s top five are dominated by national independents and boutiques, with Montreal-based National Bank Financial Ltd. replacing Toronto-based RBC Dominion Securities Inc. as the sole bank-owned exception.
An advisor in Ontario with one of those national independents, Toronto-based Blackmont Capital Inc. , sums up what advisors are looking for in a succession program: “It’s flexible, more than anything, and it involves brokers more than the firm.”
As such, the top-rated firms have succession programs that are heavy on flexibility and light on interference. Says James Werry, CEO of Toronto-based GMP Private Client LP: “We have a program that involves the firm in the process but allows latitude for advisors to make the best choices to turn their businesses [over] to someone else.”
On the other hand, dealers at which advisors feel constrained or not able to negotiate fully the terms of the sale of their books were punished with low marks. Bank-owned brokerages bore the brunt of this as TD Waterhouse Private Investment Advice and ScotiaMcLeod Inc., both based in Toronto, had the two worst ratings in the category, while DS was the only dealer whose rating decreased by more than half a point.
But while advisors are allotting greater significance to succession planning — 37% of advisors surveyed rated the importance of succession at 8.5 or more — and many feel passionately about their firms’ plans, for better or worse, it is worth noting that only 20% of advisors surveyed say they actually have a succession plan.
Advisors’ comments reveal several recurring concerns that contribute to this disparity. The difficult economy is one factor: “[Succession planning] isn’t happening so much right now,” says Blackmont CEO Bruce Kagan. “Most people, including advisors, are finding it difficult to contemplate retirement. Their businesses are worth less and their own portfolios have been affected.”
Advisors also report a scarcity of suitable successors. “It’s not that I don’t want to have a plan,” says an advisor with Winnipeg-based Wellington West Capital Inc. in the West. “It’s that I’ve had to rebuild my group — and I haven’t found the right person.”
Advisors with specialized prac-tices feel this even more acutely. Says an advisor in British Columbia with Toronto-based CIBC Wood Gundy: “This is a problem for me because I don’t know who I could rely on. I think I’m the only portfolio manager in this office, and I need another one to take over my book.”
And some advisors — pointing to demographic evidence — say finding suitable successors, whether specialized or not, is going to be more urgent in years to come. An advisor in Ontario with Toronto-based BMO Nesbitt Burns Inc. adds: “This business is going to go through a major upheaval. There’s an aging population and aging advisors.”
So, it will undoubtedly fall to the industry’s youth to fill the void of experience and expertise left by retiring advisors. And this will occur in an environment that — according to Gordon Gibson, senior vice president and managing director of NBF — has seen “huge demographical and financial trends over the past 25 or 30 years, with the net result that it’s a lot more difficult for somebody who’s starting out.”
That said, Gibson believes the brokerage business is finding a way to address the problem. “It’s more difficult to bring assets in the door today than it used to be,” he says. “So, we’re seeing new entrants to the business increasingly teaming up with seasoned investment advisors, and multidisciplinary specialized teams in which advi-sors will learn their trade.”
@page_break@Teams appear to be a burgeoning trend — and nowhere are they as prevalent or as central to a firm’s philosophy as with Toronto-based Richardson Partners Financial Ltd., at which 73% of advisors work in teams. Many of the teams include newer advisors who “already have a proven track record in the short term within the business,” says Richardson Partner’s president and CEO, Sue Dabarno. “So, they’ll join a team in which they’ll be mentored.
“It’s a good succession plan for the lead advisor on some of those teams,” she adds. “With an average age of 48, you can well imagine we have some advisors who are looking to run their careers differently in the future. So, we are now welcoming some younger advisors. It’s a win/win for both the advisor joining us and for the team he or she joins.”
This year was the first time the Brokerage Report Card asked advisors whether they worked in a team; 37% of advisors surveyed report they belong to one. IE