Rising Tide: The Urgent Call For Advisor Succession Planning

The financial advisory landscape is on the brink of a significant change due to the looming retirement of a massive number of financial advisors. This wave of retirements is poised to reshape the industry, and the critical absence of internal succession plans among many advisors is propelling a surge in mergers and acquisitions (M&A). 

The Graying Of Financial Advisors

A recent J.D. Power survey found that the average age of a financial advisor in the U.S. currently stands at a sobering 56. Concurrently, a Cerulli study has sounded the alarm, revealing that a staggering 37% of financial advisors, representing a colossal $10.4 trillion of the industry’s assets, intend to retire in the coming decade. These statistics prompt an urgent call for comprehensive succession planning for both RIAs and financial advisors within the industry.

The Succession Planning Quagmire

While succession planning is the linchpin of preserving client relationships and ensuring a seamless asset transition from retiring advisors and RIAs to their successors, the stark reality is that many are operating without a clear-cut plan. An eye-opening survey by FA-IQ unearthed the shocking fact that nearly 40% of financial advisors lack a succession plan altogether. This glaring absence is spurring the surging M&A activity witnessed in the sector.

M&A Frenzy: A Consequence Of Absent Succession Plans

The void left by the absence of internal succession plans is pushing advisors to consider simply selling their practices. Over the past four years, M&A activity among registered investment advisors (RIAs) has surged. To put things into perspective, the sector averaged 4.7 deals per month between January 2017 and July 2019, but this number skyrocketed to 12.6 per month between January 2020 and March 2023, as reported by Fidelity. Alongside this surge, the size of deals, measured by assets under management (AUM), has witnessed remarkable growth.

Navigating The Storm: Succession Planning Challenges & Misconceptions 

The pathway to succession planning is laden with complexities and challenges. One significant stumbling block is the timing of retirement. Numerous advisors grapple with deciding when to retire, plunging themselves into prolonged uncertainty. Another common misconception is that the next generation of advisors must be impeccably prepared to take the reins from day one. However, a more viable approach involves a gradual equity buy-in and mentorship, to facilitate a seamless transition over time.

Deciphering The Dilemma: External Sale, Versus Internal Succession

Choosing between an external sale and internal succession is yet another labyrinth. Each avenue has its value, but the decision should not hinge solely on financial considerations. Advisors and RIAs must also factor in their personal values and the type of client experience they intend to offer.

The Ascendance Of Institutional Buyers

Experts anticipate that the current M&A boom is merely the tip of the iceberg, with large institutional buyers wielding greater influence. Institutional buyers are poised to play a pivotal role in acquiring books of business from advisors preparing for retirement. Notably, Osaic (formerly Advisor Group) has already embarked on purchasing minority stakes in advisors’ enterprises, signaling a pronounced trend.

Valuating A Book Of Business

Determining the value of a book of business can be a perplexing task, particularly for RIAs with no prior experience selling a business. While gross revenue and EBITDA are the most frequently used valuation metrics, the process remains unfamiliar territory for many advisors.

AdvisorLaw has an industry-leading valuation tool HERE, for no charge.

Safeguarding Continuity & Client Retention

Initiating early conversations about succession planning is paramount for preserving continuity —at both the client and advisor levels. By transitioning advisors in advance of retirement, a seamless handover can occur, as clients begin to retire and draw down on their accounts. This strategy minimizes retention risks.

AdvisorLaw: Your Strategic Partner In Succession Planning

In these times of monumental change, AdvisorLaw can be your ally. Our team of seasoned experts possesses the knowledge and expertise needed to guide financial advisors in selling their valuable books of business and creating rock-solid succession plans. Whether your ultimate goal is to smoothly transition into retirement, or you’d like to explore the exciting realm of M&A, we offer personalized guidance and unwavering support throughout your journey.

Your book of business is likely one of your most substantial assets. You’ve invested years of hard work and built enduring relationships with your clients to reach this point. It’s only fair that you have the utmost confidence that your exit strategy will both safeguard your clients’ well-being and maximize your financial returns.

It’s crucial to understand that succession isn’t just a one-time event — it’s a carefully planned process. At AdvisorLaw, we have all the expertise and services necessary to help you formalize a succession plan that aligns with your best interests and those of your cherished clients.

Selling Your Financial Practice

When it comes to selling your financial practice or RIA firm, AdvisorLaw offers a comprehensive suite of services, making us your ultimate one-stop shop. Our offerings include complimentary business valuations, expert sourcing of potential successors and partners, meticulous contract preparation, and much more.

Through our network, we will tirelessly search for the perfect match — one that meets your unique demands and expectations. Rest assured, our dedicated team will handle every aspect of your transaction, providing a seamless process from the very beginning, through its successful completion.

Conclusion: The Imperative Nature Of Advisor Succession Planning

The sobering reality of the financial advisory landscape is clear — time is of the essence. With the average age of financial advisors resting at 56 and a striking 37% of them preparing for retirement, we face an undeniable call to action. This urgency cannot be overstated. The future of our industry hinges on our preparedness, as well as our ability to navigate the treacherous waters of succession planning and to embrace the opportunities which that change brings.

Navigating The Future With AdvisorLaw

As we brace ourselves for transition, AdvisorLaw emerges as a steadfast ally, guiding financial advisors toward a secure future. With a team of experts who are dedicated to your success, we offer a lifeline in the tumultuous sea of succession planning. Your book of business, a testament to years of dedication, deserves an exit strategy that both protects the welfare of your clients and maximizes your financial returns.

Remember, succession isn’t merely an event — it is a precisely orchestrated process. With AdvisorLaw by your side, you can navigate these uncharted waters with confidence, knowing that your legacy will endure, and your clients will be well cared for. Embrace the future with clarity.

Contact us today for a complimentary consultation!

Blog Contact