Succession Planning Vacuum Risks Alienating RIA Clients, Next-Gen Leaders

What’s the plan? Well, nobody seems to know.

With a massive wave of retirements hitting the wealth management industry over the next decade, succession planning might seem like a top priority. However, just 6% of advisors nearing the end of their full-time careers have a fully documented succession plan, according to a report from Kestra Financial and Bluespring Wealth Partners. If they don’t figure out their strategies soon, potential successors could be walking out the door while clients scramble to find new help.

“Succession planning is about choosing someone who will not only guide the firm into the future but also uphold the same high standard of care clients have come to rely on,” said Pradeep Jayaraman, president of Bluespring Wealth Partners. It’s critical for protecting clients, creating better career paths, retaining talent, and increasing enterprise value, he said.

Put the ‘Pal’ in ‘Principal’

It’s not that principal advisors aren’t trying to craft succession plans. Many, however, are  hitting road blocks and finding that their visions for their businesses may be misaligned with those of  potential successors. While owners feel confident that they’re ready to walk away from their firms, the next generation of advisors often feel stuck, undervalued and not sure if they’ll even stick around, the report found:

• More than three-quarters of principal advisors have not mapped a timeline for transitioning client relationships, and just around 60% haven’t given any company equity to their successors.
• Meanwhile, next-gen advisors are frustrated, with roughly half saying they don’t have a good sense of when their principals will retire, and one in three are willing to  consider leaving in the absence of a clear succession timeline.

Principal advisors should be transparent with successors and provide training on how to run an entire firm, not just typical advisor duties like financial planning and investment management, Jayaraman told Advisor Upside. “Delaying these efforts risks talent and client loss, and erodes firm value,” he said.

Play by the Rules. Advisors can close up shop whenever they want, but leaving clients in the lurch without instructions for transitioning assets or choosing a new advisor would go against the golden rule of acting in their best interests. Abandoning clients and contractual commitments might result in regulatory, legal, and reputational issues, said Greg Cornick, president of Advice & Wealth Management at Osaic. “Having a formal succession plan is just plain smart and a professional responsibility of any advisor,” he told Advisor Upside.