Proactive Succession Planning Is Central To Clients’ And Advisors’ Futures

Mark Contey, CMO, LaSalle St.
Mark Contey, Chief Marketing Officer, LaSalle St.

A recent Cerulli study confirms what we already know – the aging of America will have a great impact on the financial services industry. More than one-third of financial advisors working today are expected to retire in the next decade. This group manages 40% of total assets. Here’s the factor that makes the situation seem worse: less than half of all advisors have a succession plan in place.

For years, this has been a problem relegated to advisors and clients. Now it’s evolved to a systemic issue requiring a higher-level response. Firms of all sizes need to take a proactive role in succession planning – something that should have been done for years – or they risk having business walk out the door to a competitor.

Firms of all sizes need to take a proactive role in succession planning.

Providing this kind of service to current and prospective advisors is critical to a firm’s ability to scale in the face of the expected surge in demand due to the Great Wealth Transfer. But more importantly, working to create smooth transitions during a planned retirement or untimely death of an advisor is a vital business practice that can drive significant growth for firms that take these steps now.

Over the past several years, we have worked with our advisors to proactively develop unique continuity and succession plans for their businesses. We have found that while each advisor is different – with a range of client, product and service needs – the fundamental approach and goals stay consistent.

Senior advisors want to know that they are working with an individual who shares their values, understands the business and, most importantly, will deliver for their trusted clients. Working with a firm that understands both the retiring advisor and the potential successor can help ensure a successful partnership.

Driving Growth For Advisors And The Firm Through Succession Planning

Looking back at the past decade, industry observers will likely describe what took place as a mad dash for scale. The M&A craze fueled by private equity led to significant consolidation at every level of the wealth management space.

Now, as the cost of capital has increased, firms are forced to take a different approach. However, the opportunity is clear: serving as a facilitator and consultant for the majority of advisors without succession plans to find NextGen support can be a significant driver of growth.

Ideally beginning the process several years before retirement, firms can work with a senior advisor as they continue to build their business and identify and ensure compatibility with a potential successor. Not only does this alleviate the potential fire sale of a business at the end of an advisor’s career, but it also allows all parties to take advantage of an educational and supportive partnership on a supportive platform.

This work isn’t easy, nor does it provide an instant return on investment – which is likely why it has not been adopted by a larger number of firms across the country. However, clients, advisors and firms benefit from advance succession planning.

A Risk Management Policy For All

One of the biggest risks firms face is advisors overlooking their current firm as a succession solution and choosing to sell their books of business to someone on a different platform. Exploring opportunities for internal or M&A-based succession with advisors reduces this risk while enhancing value.

One of the biggest risks firms face is advisors overlooking their current firm as a succession solution.

It is critical that firms have access to financial solutions to help execute potential deals. We have found utilizing our own balance sheet as well as third-party capital providers an important aspect in this part of the process. Providing additional flexibility to advisors on both sides of the deal is highly valuable.

Centrality Of Succession Planning

Facing this kind of existential crisis should force firms to place succession planning at the core of their advisor engagement. Succession cannot remain an afterthought or a simple financial transaction.

These plans provide a clear path for sustained support for an advisor’s clients with limited ambiguity about processes, personnel or access. And while not always on the top of their priority list, planning well ahead of an eventual retirement protects the retiring advisor’s legacy.

All quality advisors are concerned about their clients and want to ensure they have the right support in place after they retire. But too few are making plans to achieve these goals. The wealth management firms that will be the most successful in the future will provide their advisors with the opportunities, resources and tools to develop comprehensive succession plans. The firms already doing this are positioned to take full advantage of the demographic realities facing our industry, driving growth and stability for all parties involved.

Mark Contey is the Chief Marketing Officer of LaSalle St.

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