TD Ameritrade Survey: Majority of RIAs Lack Succession Plan

Many advisors have been unable to identify a qualified successor

A majority of independent RIAs know that their clients expect them to have a succession plan in place, yet most have not planned for the formal succession of their businesses, according to a survey of 500 RIAs released on Wednesday, June 2, by TD Ameritrade Institutional, a division of TD Ameritrade Holding Corp.

The quarterly survey found that although the average age of RIAs is over 50, 57% did not have a formal succession plan and 88% did not have business valuation in place. Thirty-nine percent of those surveyed did have a formal succession plan, and 4% were developing one.

Nearly half of those with a plan in place expect to appoint a successor to take over their business, according to the survey, 18% are considering selling the practice and exiting the business or merging with another firm, and 29% not decided what type of succession option to implement.

Fifty-seven percent of those with a succession plan cited a desire to support the long-term viability of their firm as the reason; 52% said the main reason was satisfying client expectations that a succession plan is in place; 36% wanted to provide a smooth transition into retirement; another 36% said providing continuity for their employees was the reason; and 32% wanted to enhance the valuation of their firm.

Not having identified a qualified successor was the explanation 42% of respondents gave for not having a succession plan. Thirty-two percent said having a plan was not important at this stage in their careers, and 20% cited lack of time to develop a plan.

Nearly half of advisors surveyed said they know the current value of their firm, yet only 12% had had a formal valuation completed in the last 12 months, according to the survey.

Asked how they would enhance their firms' valuations over the next year, 61% of respondents said they would build a wealthier book of business. Another 48% said would do so by implementing a marketing plan, 40% by improving operational efficiency and 38% by investing in technology. Twenty-eight percent look to improve firm valuation by improving staff skills, while 26% plan to do so by adding staff.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.

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