Last May, I penned a feature on a key area of practice management that many advisors overlook: exit planning. The people I interviewed, financial service professionals whose businesses varied widely in scope and direction, all noted that such planning—grooming one or more protégés to assume control of their firms when they retire—is a critical component of their practices.

Why so? A good exit plan can assure the insurance or financial professional of a comfortable retirement income stream; a smooth transition to a junior advisor who, when properly mentored, will provide continuity for the practice and instill loyalty among long-standing and profitable clients; and a high sale for the practice because client relationships have been maintained.

These benefits, however, are falling on deaf ears.  That’s evident from a new report published by FA Insight, a Tacoma, Washington-based consulting and research outfit. The 84-page “Study of Advisory Firms: People and Pay” notes that an inability or unwillingness to undertake exit planning is “endemic across the industry.”

The report says the level of succession preparedness is “largely unchanged” since FA Insight last authored a report of this scope in 2009. (With a special focus on “human capital,” the study also explores trends in staffing and compensation, revenue, income and assets under management, firm organizations and career paths, among other areas.)

Two-thirds of the 350 advisory firms surveyed—practices that gross a minimum of $100,000 in annual revenue and that have been in business for at least 12 months—say they don’t have an “adequate succession plan. Within this group, 38% have no exit plan. And only about one-quarter of small firms (those that generate between $100,000 and $500,000 annually) say they feel that they have adequately prepared.

For nearly one in five of the polled firms, exit planning is “not a priority” (no plan exists and the firm is not currently working on one.) Among those firms that have not adequately prepared for a hand-off to the next generation, nearly a quarter say their plan either lacks a suitable successor (14%) or lacks buy-in financing (8%).

The study observes that two factors have created a “near-crisis” in respect to the lack of exit planning: (1) the large percentage of advisory firms whose principals are now close to retirement (51% of primary owners are within 12 years of retirement and about 18% are within seven years); and (2) an increase in the value of the principals’ equity shares in their business, making them potentially less affordable for distribution to the firms’ successor-owners.

The likely result: a greater concentration of ownership in fewer hands. In 2010, the report says, fewer than one in six staff members were primary owners holding 5% or more equity in their firms. The ratio falls to one in 10 for the largest firms. (Some 22% of those polled have gross annual revenue exceeding $3.5 million; and 20% have between $1.5 million and $3.5 million in gross annual revenue.)

The lack of preparedness could ultimately undermine positive trends among advisory firms identified by the report. The study notes, for example, that appreciating client portfolios is fueling growth; the typical firm anticipates revenues to increase 12.5% in 2011, off from the 18.3% recorded in 2010, but far better than the 10% revenue decline experienced in 2009.

The increased cash flow, in turn, is enabling firms to invest more in their people. This trend is reflected in greater compensation for staffers: Median compensation for support advisors and lead advisors increased 3.6% and 3.4%, respectively, between 2009 and 2011. Compensation for associate advisors was up a whopping 17% over the same period.

The better performing practices, which the study’s authors dub “standout firms,” are also distinguishing themselves by delivering greater shareholder value, establishing career paths for junior advisors and support personnel, retaining employees and by developing clear business objectives.

Yet, even many stand-out firms, the report notes, are potentially “sacrificing long-term sustainability at the expense of short-term performance” by not adequately addressing certain staffing-related issues. Topping the list is failing to engage in succession planning. And therein lies the rub: Without a plan to transition to the next generation of owners, everything else advisors might do to build their practices could prove short-lived.

Don’t let your practice suffer this unfortunate fate. What to do? The study identifies a number of best practices among those firms that have adequately prepared. Among these are establishing organizational structures with clearly identified lines job roles, responsibilities and reporting relationships; having a documented plan for a future structure under new principals; and creating structured career paths, development plans and formal training programs for candidates identified as potential new owners. Now this, to me, sounds like a plan.