According to a recent survey by DeVoe and Company, nearly half of all RIA firms managing more than $1 billion in assets experienced higher-than-average turnover rates in 2021. Now more than ever, the pressure is on RIAs to prepare a succession plan and protect their assets.
In today’s turbulent market, without a succession plan in place, advisors run the risk of losing their chance to reap the full benefits of their decades of work. More than 75% of business owners in the U.S. plan to use the proceeds from the sale of their practice to pay for the majority of their retirement. Yet only 2% of RIAs have had a proper valuation performed on their business.
As the population of advisors across the board continues to age, a growing supply and demand issue has emerged. Executives must now find a way to retain their top talent while being able to add value for their senior advisors, in preparation for their eventual departure. But a recent survey indicated that 68% of RIA firms claim that, if they were asked to transition leadership today, the second and third generation staff would not be prepared.
So what’s the issue?
- Do BrokerCheck disclosures ever fall off automatically?
- Weaponized Form U5
- Investment Adviser Representatives (IARs) Must Complete Continuing Education Program To Maintain Registration
- FINRA’s expungement reform takes a turn for the worse
- Do you have a dedicated chief compliance officer?
- If I’ve been terminated, how long will it be before a Form U5 is filed?
- Certified Financial Planners Face Tough Enforcement Under Tom Sporkin
It all comes down to how the successor will be chosen.
If the transition will be internal, planning is essential. The majority of executives agree that mid-level advisors must have a minimum of two years in a senior role before they are even qualified to become full owners. By gaining this time and experience, both the successor and the predecessor gain peace of mind in knowing the business will be protected, and in most cases, they’re more likely to achieve a smooth and successful transition.
If the succession is not going to be internal, the firm must find a way to make their business more enticing for acquisition. But how does a firm achieve that sustainably while protecting its staff during the transition? More often than not, offering younger advisors a chance to capitalize on the practice’s future expansion will alleviate that challenge.
Still, choosing a successor is only a small piece of the puzzle. The best way to achieve a successful and rewarding transition is by engaging with an M&A team early in the process. Failing to do so puts RIAs at risk of selling their firm for a fraction of what it could be worth and even to the wrong inheritor.
When it’s time to step down, those who see their succession as a one-time event, rather than a continuous process, are prone to sacrifice their goals. AdvisorLaw provides all the assistance and services required to assist you in formalizing a strategy that serves both your interests and the interests of your clients. We are a one-stop shop that offers complimentary business valuations, partner and successor sourcing, contract drafting, and more.
Through our Practice Purchase Network (PPN), we can assist you in finding the ideal fit. Our experts will work tirelessly to find a deal that satisfies your requirements, and we will oversee your transaction from beginning to end.