Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.
In Practice June 3, 2010
Most RIAs Lack Formal Succession Plan
While most surveyed registered investment advisers (RIAs) said succession planning is important to their clients, less than half of RIAs have a formal plan.
Reported by Ellie Behling
The quarterly survey of RIAs by TD AMERITRADE Institutional found that more than half (57%) of RIAs reported not having a formal succession plan or business valuation (88%) in place—despite the average age of respondents being older than 50. Thirty-nine percent of advisers reported they do have a succession plan and 4% said they are developing one.
Advisers who do have a formal succession plan most commonly plan to transition their firms internally to a key employee or a group of employees (49%), followed by selling the practice and exiting the business or merging with another firm (18%). Almost a third (29%) has not decided what type of succession option they will implement.
Having a key employee to pass a book of business to is important, the survey suggested. Finding a qualified candidate to transition their business to is the number one reason those who don’t have a succession plan said they don’t have a plan (42%), according to the survey.
The other top reasons advisers don’t have a succession plan include not believing a succession plan is important at this career stage (32%) and lack of time to develop a plan (20%).
The top five reasons surveyed advisers cited for having a formal succession plan include supporting the long-term viability of the firm (57%); satisfying client expectations that a succession plan is in place (52%); providing a smooth transition into retirement (36%); providing continuity for employees (36%) and enhancing the valuation of the firm (32%).
“While some advisers may not be ready to sell or exit the business, anticipating the unexpected and putting a plan in place for the future can help put employees and clients at ease while positioning for the long-term viability of the business,” said Mike Watson, director of practice management, TD AMERITRADE Institutional, in a news release.
Nearly half of surveyed RIAs said they know the value of their firm (48%), but only 12% said they had a formal valuation completed in the last 12 months.
Most respondents (61%) said building a wealthier book-of-business is the common path to higher valuation. RIAs also look to improve firm valuation over the next 12 months by improving staff skills (28%), adding staff (26%), implementing a marketing plan (48%), improving operational efficiency (40%) and investing in technology (38%), according to the survey.
TD AMERITRADE surveyed 500 advisers.