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More RIAs Developing Succession Plans: TD Ameritrade Survey

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More advisors are developing a formal succession plan, with most saying they will name an internal successor, according to a survey released Monday by TD Ameritrade Institutional.

TD Ameritrade’s quarterly survey of 502 RIAs found that 62% of advisors say they have or are in the process of developing a succession plan, up from 43% in 2010.

George Tamer (below), director of strategic relationships for TD Ameritrade Institutional, says that because the average age of survey respondents was 54 years, “there is clearly an immediate need for formal succession planning.” TD Ameritrade, he said, is “encouraged by the survey results which show advisors are taking steps to create formal succession plans.”

George TamerTop reasons for creating a succession plan, the advisors said, are satisfying client expectations (66%), supporting the long-term viability of the firm (51%) and providing a smooth transition into the advisor’s retirement (49%). Advisors nearing retirement say difficulty identifying an internal successor (53%) and lack of time to develop a succession plan (21%) were top reasons they don’t have a plan in place.

They survey also found that finding an internal successor is the preferred exit strategy for half of the advisors polled followed by selling the practice (11%) or merging with another firm (8%). Nearly a third of advisors who report having a succession plan have not decided which succession option they will implement.

When asked who they would choose to run their firms, nearly half of the advisor polled said they would pick current employees while 42% said they would recruit from another advisory firm. RIAs are also looking for leaders in other professions (24%), recent graduates (20%) and career changers (16%), the survey found.

Advisors also say when looking for a successor they will value client service and communication (67%), relationship building (51%) and business development (48%) over technical financial planning (36%) and management skills (22%).

The survey found that advisors were split on whether the industry is facing a talent shortage, with 44% agreeing and 56% disagreeing. However, two-thirds of advisors said they wouldn’t be hiring in the next 12 months.

While the survey found that an overwhelming majority of RIAs report

their retirement timelines are on track (85%), 13% say they will work longer than expected and only 2% say they will retire early.

The top two reasons advisors said they’re going to work longer is because they love what they do (34 percent) and because their clients need them now more than ever (25%). Half of advisors surveyed plan to retire within the next 15 years, which Tamer says sets the scene for a generational power shift to Gen X and Gen Y advisors.

“Turning the reins over to the next generation is critical to the long term viability of a firm,” Tamer said. “A firm with an aging client base may suffer from a lower valuation and should consider attracting younger advisors and younger investors to establish a lasting legacy.” In order to successfully transition the business, “the boomer generation should consider taking steps to cultivate leaders within their organization and relinquish some control over day-to-day business activities.”

When it comes to cultivating current staff, survey results show there is room for improvement in the area of leadership development opportunities for Gen X and Gen Y advisors.

Nearly 40% of advisors indicated they offered no leadership development opportunities, while networking (27%), internships (25%) and mentoring programs (22%) topped the list of professional development opportunities offered by advisors, followed by paid professional development and education (19%) and job shadowing (14%). Nearly two-thirds of advisors offer some kind of mentoring for younger advisors whether it is formal or informal, the survey found.

“What attracts, engages and retains talented advisors is different for each generation,” added Tamer. “Financial benefits aside, providing a clear career path, mentoring and opportunities to make an impact on the lives of investor clients can be major motivators for Gen X and Gen Y employees.”


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