Less Than Half of RIAs Have Successions Plans
Many advisors simply don’t have the expertise needed to prepare a firm for the next generation of leadership.
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Clients aren’t the only ones who can fall behind on retirement planning.
Less than half of independent advisors said they have a written succession plan in place to help pass on their business once they retire, according to a recent report from DeVoe & Co. The 42% that have written plans marks a record low for the industry since the M&A consultancy started tracking the data in 2019. Even worse, one in three firms admitted leadership transitions would be “bumpy” at best.
“The consequences can be severe,” said CEO Dave DeVoe, adding that operational disruptions could lead to lost clients and lower firm valuations.
What’s the Plan?
The record lows are partly due to the RIA industry’s own success. As valuations continue to increase, advisors feel they just can’t afford to buy out their firms’ founders. Unable to secure an internal transition, RIA leaders have been giving up succession plans altogether, according to the report.
Preparing your firm for the next generation also requires plenty of expertise that many advisors simply don’t have. Principals often start succession plans but simply get overwhelmed when considering the major life changes surrounding retirement and beyond. It’s a complicated process both mentally and emotionally, the report found.
“Succession planning isn’t just about preparing for retirement or leadership changes, it’s about building a sustainable business model that instills confidence among clients, retains top talent and protects the firm’s legacy,” DeVoe told The Daily Upside.
Don’t Worry. There’s good news, though. While many firms would prefer to transition internally, sometimes that’s not a viable option and they often end up selling to a larger firm. Luckily, larger firms generally have more robust succession plans in place. The DeVoe report found:
- RIAs with more than $1 billion in AUM are twice as likely to have a succession plan as firms with less than $1 billion.
- Some 30% of RIAs intend to draft a plan and 20% have drafted a plan but have not implemented it yet, both of which are improvements from 2021.
Advisors are at least thinking more seriously about planning, and that’s good for the industry as a whole. “A succession plan is not just an administrative necessity — it’s a strategic imperative,” DeVoe said.
