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Is Advisor Succession Crisis Just a Mirage? Looking at the Trends

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As the wave of baby boomer advisors moves closer and closer to retiring, so too is the pressure building for a wave of selling of financial planning practices. Yet the reality is that the retirement wave may not be nearly as large as anticipated, in part because difficult markets have left many advisors behind on their retirement savings (not unlike so many other baby boomers), but more significantly because many advisors enjoy doing financial planning and feel capable of continuing to do it even in their later years. The latter is especially true if the practice can be transitioned to a somewhat lighter load with fewer staff and management responsibilities; a so-called “lifestyle” practice.

Unfortunately, though, advisors planning to continue a lifestyle practice and “die with their boots on” face another problem: how to capture the value of the business when a death or disability event really does remove them from the picture. Fortunately, new options are beginning to emerge, from acquiring firms that will take over the ownership and management responsibilities and just let advisors live a lifestyle practice within a larger firm, to firms that are beginning to offer contingent purchase agreements tied to outsourcing platforms that will allow them to buy the business if/when/as needed but not before. Given the new choices emerging, does that mean when we finally reach the point where advisors are supposed to retire, we’ll find it’s nothing more than a mirage? Is there really a near-term succession planning crisis looming for advisors, or just a distant exit planning problem?

Just as the aging baby boomer demographic is driving a rising wave of retirees, an estimated 10,000-plus baby boomers will turn 65 every day through the year 2030, and shifting the financial services industry to an increasingly retiree-centric focus, so too does the tale of the aging boomer describe another massive trend: the looming retirement wave of financial advisors. The average age of a financial advisor is now approximately 50 years old, and continues to rise every year. To put the math in context: roughly speaking, for every new 20-something that graduates from a financial planning college program and comes into the industry, there are two advisors who just became eligible for Social Security benefits.

The implication of this aging demographic is that advisors will soon begin a mass wave of retirement in the coming years, leading to a buyer’s market for financial planning practices given the imbalance between older sellers and younger buyers. But is that really an accurate reflection of the coming advisor marketplace? Will advisors really retire when the time comes?

When to Exit From The Financial Planning Practice

For some advisors, retirement will have to be delayed, for the simple reason that as markets have languished for prospective retirees–forcing baby boomers to increasingly delay retirement–so, too, have those same forces impacted advisors. In other words, between poor market returns, and the impact that “new normal” mediocre markets have had on the growth of financial planning firms themselves, many advisors simply don’t have the wealth necessary to declare their financial independence. In some cases, the problem is exacerbated by the fact that if the financial planning business is sold, the proceeds will have to be reinvested into public markets that, at current prices/yields, will provide far less income than just keeping the advisory practice in the first place.

But the broader issue is that many advisors simply don’t want to retire, because they enjoy what they do–especially if they can focus the practice to get rid the job duties that are the least desirable. In other words, financial planning is a classic example of a profession where you can “die with your boots on” and don’t actually need a succession plan, After all, this is not exactly a physically intensive business: as long as the mind is able and the body allows for meetings with clients, planners can continue to work. It appears that many are doing just that, aided more than ever by the assistance of technology and outsourcing to craft a “lifestyle” practice, or alternatively to “tuck-in” under another financial planning firm to take advantage of their resources. In fact, in some cases the process of transitioning a business to make it more saleable also makes it easier to retain as a lifestyle practice, reducing the likelihood of completing a sale.

Yet the implications of this trend–that the wave of coming advisor retirements may be a mirage that won’t really materialize in the coming years when we get there, and that most planners don’t really need succession planning because most of them simply won’t need a successor for a long time to come–has profound implications for practice management trends and decisions for financial planning firms.

In the second part of our post, we’ll discuss when it’s really time to exit, as well as alternatives when doing so.


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