As a generation of trailblazing advisors nears retirement, younger advisors get set to take the reins. A survey conducted by TD Ameritrade Institutional suggests more independent registered investment advisors are making the move to develop a formal succession plan and most say they will identify an internal successor.
According to the quarterly survey of 502 RIAs, 62 percent of advisors say they have or are in the process of developing a succession plan, up from just 43 percent in 2010. Satisfying client expectations (66 percent) is the top reason advisors say they have a succession plan, followed by supporting the long-term viability of the firm (51 percent) and providing a smooth transition into the advisor’s retirement (49 percent).
For those nearing retirement, difficulty identifying an internal successor (53 percent) and lack of time to develop (21 percent) were top reasons advisors say they don’t have a solid plan in place.
“With the average age of survey respondents being 54 years, there is clearly an immediate need for formal succession planning,” said George Tamer, director, strategic relationships, TD Ameritrade Institutional. “We’re encouraged by the survey results which show advisors are taking steps to create formal succession plans. They are concerned about who is going to care for the businesses they’ve built and the clients who depend on them.”
Finding an internal successor is the preferred exit strategy for half of advisors followed by selling the practice (11 percent) or merging with another firm (8 percent). Nearly a third of advisors who report having a succession plan have not decided which succession option they will implement. This finding indicates some advisors see the need to maintain flexibility in their plans and will make the determination closer to retirement.
An overwhelming majority of RIAs report their retirement timelines are on track (85 percent). Thirteen percent say they will work longer than expected and only 2 percent say they will retire early.
The top reasons advisors say they’re going to work longer are because they love what they do (34 percent) and they say their clients need them now more than ever (25 percent). Half of advisors surveyed plan to retire within the next 15 years, setting the scene for a generational power shift to Gen X and Gen Y advisors.