As financial advisors age and the financial advisory business continues to change, having a documented succession plan in place has become increasingly important for advisors.
In fact, the results of this year’s Report Card series, compared with those from 2009, revealed just how much things have changed since. For example, the average age of advisors surveyed this year was 50.4 years, up from 46.7 in 2009, while the percentage of advisors who have a documented succession plan in place increased even more acutely, to 46.7% in 2018 from 27.3% in 2009.
Furthermore, advisors gave the “firm’s succession program for advisors” category an overall average importance rating of 8.7 this year, up significantly from the rating of 7.5 that advisors gave the category in 2009.
Although the aging advisor demographic is a key reason why advisors are taking succession planning more seriously, George Hartman, president and CEO of Toronto-based Market Logics Inc., points to another reason: changes within the structure of the financial advisory business and advisors’ evolving role, which is leading many advisors to consider retirement.
“What’s happened recently is that we have, to a certain extent, overregulation, and many advisors are simply fed up,” Hartman says. “[The advisor’s role also is] shifting from being a technical expert to being a coach, counsellor, confidant, cheerleader, and so on. And for many advisors, this is an uncomfortable change.”
However, as advisors pay greater attention to succession planning, many see significant room for improvement in their firm’s succession programs. Advisors gave their firm’s succession program an overall average performance rating of 7.8. The difference between this rating and the overall average importance rating resulted in a tie for the seventh-largest “satisfaction gap” in the Report Card series.
Advisors were underwhelmed with the structure of these programs and the payouts to advisors leaving the business. In particular, advisors believe that there is more focus on the profit the firm would gain from selling an advisor’s business than on the needs of the advisor’s clients or the financial well-being of the advisor selling the book of business.
“[The succession program is] held strictly in management’s best interest,” says an insurance advisor in Ontario with Waterloo, Ont.-based Sun Life Financial (Canada) Inc. “I don’t believe the client comes into the conversation at all. I’ve seen clients [get handed off] to advisors who don’t have a clue.”
“The banks are attempting to pay as little as possible to transfer [advisors’] businesses [and ensure] high client retention,” says an advisor in British Columbia with Toronto-based BMO Nesbitt Burns Inc., which is owned by Bank of Montreal. “You’re not getting paid enough if you use the in-house program.”
Advisors who ply their trade at Canada’s bank branches don’t have the option of selling their books. These advisors must rely largely on their bank’s pension plan to fund their retirement income. But regardless of this difference in the form succession planning takes, these advisors also believe that their pension plans are not adequate to provide for a comfortable retirement.
“The amount of pension you receive in retirement after working so many years in the bank is so little,” says an advisor in Atlantic Canada with Toronto-based Bank of Nova Scotia. “And with us constantly giving clients financial advice on how to create a retirement or pension plan, you would think [the bank] would offer more pension to employees.”
Nevertheless, there are some firms that are getting the succession program right. One of them is Mississauga, Ont.-based national independent brokerage Edward Jones, which received a performance rating of 9.1 in this category from its advisors.
“[The succession program is] very impressive,” says an Edward Jones advisor in Ontario. “It recognizes the advisor. The payout is a lot more lucrative [than it used to be] – almost as if you’re selling your own book, but [the program] saves you the hassle. It’s not just about the money, though: the firm offers limited partnership with [the program].”
Says Ann Felske-Jackman, principal and head of financial advisor talent acquisition with Edward Jones: “We approach the succession plan for the advisor the same as how we approach everything else in terms of the advisor’s support: by putting the client at the centre of every decision that’s made, and by letting the advisor be involved in what decisions are made because they’re the only ones who know their client best.”
Making sure the client experiences a smooth transition during the succession process means placing a priority on mentoring and training between the retiring advisor and the succeeding advisor, Felske-Jackman says: “The [retiring advisors] have the choice to help us choose their successors. They’ll also have the choice of the time frame for their succession plan.”