Few Advisers Plan for Succession

Fewer than one in three financial advisers have a formal succession plan, according to a new report, “The Succession Challenge 2018,” issued by the Financial Planning Association (FPA) and Janus Henderson Investors. Forty-one percent have some sort of succession plan.

For those within five years of retirement, 40% have a formal succession plan, but for those within five to 10 years, the figure is just 34%.

Advisers in a larger practice are more apt to have a formal plan, with 60% of those in firms with $500 million or more in assets under administration (AUA) having one. In firms with less than $50 million, just 13% have one.

Succession planning also tends to focus more on the value of the business than the transition of the business: 72% said their plan includes a goal for determining their practice’s value. Additionally, the report says, advisers’ succession plans include: information on the client transition process (61%); information on the workload transition process (57%); information on the time frame for the transfer process (56%); and information on the team transition process (41%).

That latter number varies with team size. For advisers with 10 or more team members, 67% have a formal plan including information on team transition. For those with fewer employees, such planning is true for only 47% of advisers. Among those with a formal plan, 39% worked with an outside consultant to create it, and 18% worked with someone in the broader organization, e.g., their broker/dealer (B/D).

Among those advisers without a succession plan, 85% said their practice faces moderate to significant risk. Only 28% of advisers said they feel very prepared to transition the business.