Advisors often—and repeatedly—cite the benefits of long-term planning with their clients, a hallmark of any financial planning strategy. Troublingly, they may not be following their own advice.
According to the latest Cerulli U.S. Advisor Metrics report, more than 105,000 financial advisors (7.4% of industry headcount and 41.4% of total assets) plan to retire in the coming decade. Moreover, demand for their services is expected to grow 13% through 2032, according to the Bureau of Labor Statistics. Yet data shows they are postponing their succession planning.
What’s behind this surprising behavior? Why is such a risk-averse profession acting particularly risky? From my experience working with thousands of RIAs and advisors, I know some advisors are torn about the prospect of retiring altogether, and others are overwhelmed by the options. But every advisor I know is defined by their career helping others, and that’s incredibly hard to give up. Whatever the root cause, advisors shouldn’t let inaction be their downfall.
As an advisor, how can you confront the fears of relinquishing your business and close your career on a high note? I have some ideas.
M&A Isn’t the Only Way
The good news is that as an RIA owner, you have multiple options for ensuring continuity with the businesses you’ve worked so hard to build. 2024 was the most active year for RIA mergers and acquisitions, with 269 transactions, surpassing the previous high of 264 deals recorded in 2022. While capital has become a bit more expensive, the interest in the RIA marketplace will sustain the M&A trend.
Funding and private equity groups offer a way to de-lever or derisk a portion of the business while retaining operational control. Buy/sell agreements with local advisors that trigger upon the RIA owner’s death are also a smart idea.
What’s clear is that protecting your legacy is critical. Without constant pruning and modernizing, over time, your firm’s assets will diminish as the clientele grows older alongside you.
Establishing a baseline plan is essential to protect these decades of growth. Leveraging your custodial relationships can provide trusted counsel on the various options that fit your needs and personality.
Pencil In Meaningful Conversations
The chances of a viable buyer approaching you with the necessary capital and eagerness to purchase your firm are not kismet. There is a natural inclination to believe that someone in the office will want to buy the firm. You fail to recognize that you may not be having those conversations out loud.
It takes between five and 10 years to identify a suitable buyer. Not building in a thoughtful timeline could delay your retirement or force you to rush through the sell side with an acquirer. Private equity-backed firms with deep pockets can easily outbid local firms, particularly when they’ve run out of options. If it’s important to you to keep your practice local, start scheduling those coffee dates now.
Recognize You Still Have So Much to Offer
Most advisors I know say they want to get back to doing what they love: working with clients. To do so, you must determine where they spend most of their time and what you would rather be doing. Sometimes, it’s not an outright sale that will make the difference.
Ten years ago, I helped an advisor break away and establish his own RIA. While that solution worked for him for many years, he eventually rejoined a more prominent firm. Through his entrepreneurial journey, he realized he was battling a mission crisis. While he wanted to have an “ownership interest,” he did not want to make every decision running the business. Rather, he wanted the flexibility to spend his time doing what he loved most, meeting with clients.
Building a succession plan is necessary and hard work. As an RIA owner, you owe it to yourself, your past, present and future selves, and your clients, to have these hard conversations. Beginning the planning today will ensure you have all the I’s dotted and T’s crossed for tomorrow.
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