From the July 2010 issue of Boomer Market Advisor • Subscribe!

July 1, 2010

Majority of RIAs lack succession plan

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 in June by TD Ameritrade Institutional.

The quarterly survey found that although the average age of RIAs is over 50, 57 percent did not have a formal succession plan and 88 percent did not have business valuation in place. Thirty-nine percent of those surveyed did have a formal succession plan, and 4 percent 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 percent are considering selling the practice and exiting the business or merging with another firm, and 29 percent 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 percent said the main reason was satisfying client expectations that a succession plan is in place; 36 percent wanted to provide a smooth transition into retirement; another 36 percent said providing continuity for their employees was the reason; and 32 percent wanted to enhance the valuation of their firm.

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