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3 Critical Steps to Groom Your Successor

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Fidelity released its Future Leaders Study, which found three steps RIAs need to take to support young advisors in the firm if they hope to keep them.

The report follows the “Recruiting Redefined” study of 2014, which examined ways for firms to find talented young advisors. Fidelity interviewed “future leaders” in a blind study to ask them about what made them stay at their firms. Participants were between the ages of 27 and 40, and had been working as an advisor for three years, with a 15% increase in AUM last year.

“What we focused on in this study is once you’ve hired the advisors, how do you retain them? How do you develop them to be a leader in your firm?” Jylanne Dunne, senior vice president of practice management and consulting for Fidelity Clearing & Custody Solutions, told ThinkAdvisor on Tuesday.

The study found 37% of current owners expect to leave the business in the next 10 years. Although the number of advisors joining the industry is finally increasing (a mere 1.1% in 2014, the first time advisor headcount has increased since 2005, according to Cerulli), 20% of senior advisors said their limited expertise was a challenge to their being considered as a successor.

A State Street Global Advisors report in October estimated almost 70,000 advisors with more than $2 trillion in assets under management  will retire over the next five years, two-thirds of whom do not have a succession plan in place.

Firms like Live Oak Bank are making purchasing a retiring advisor’s firm more attractive — and feasible — to young advisors, but Fidelity found three-quarters of RIA firms don’t have their next generation of owners in place.

“As much as our advisor clients consistently tell us that they’d like to be able to focus on an internal transition when they leave the firm, they also have indicated that they do not have the talent in house in order to be able to execute on that,” Dunne said.

Fidelity identified three ways that advisors who manage the “where to get talent” hurdle can get keep that talent. First, they have to create a stable environment to keep young advisors in the industry.

Variable compensation, unclear career paths and difficulty establishing their own book of business make the advisory industry unattractive to many new advisors, Fidelity found. Using a team structure, one-on-one coaching or formal mentoring can help overcome these challenges.

With a stable work environment for potential successors to grow in, advisors then can evaluate the best candidates. The study identified eight personality traits common to young advisors — drive, putting clients first, persistence, discipline, adaptability, inquisitiveness, people-proficiency and entrepreneurship — but the best candidates for leadership roles also fit into one of three categories:

  1. Compassionate problem solvers. These advisors are motivated by the planning process, enjoy working with clients but aren’t sales motivated, and are curious and friendly.
  2. Builders. These advisors tend to be extroverts. They’re goal-oriented and confident in their ability to develop relationships.
  3. Competitors. This group is more driven by money and enjoys the “thrill of the hunt.” These advisors are less focused on the planning process, and like to follow the markets and pick stock winners.

Finally, advisors need to accelerate their best candidates for succession. Fidelity found that the high-achieving advisors interviewed in the study viewed success as financial freedom, independence, gratification and flexibility. To retain these future leaders and push them to top positions, firms need to be transparent about how they will be compensated and their career path.

They also can’t neglect young investors. Most young advisors want to serve their peers, according to Fidelity, but need their firm’s support to do so. The report suggested leveraging a wealth transfer opportunity by allowing younger advisors to serve the children and heirs of current clients.

Technology is also important to retain qualified advisors. CRM platforms are particularly important, and young advisors expect their firms to adopt the latest technology, as well as provide training on how to use it.

Finally, young advisors will be affected by robo-advisors and the Department of Labor’s fiduciary rule just like more experienced advisors. Firms need to address these challenges head on, according to the report.

Dunne said, “The same attributes that can make an advisor successful — their entrepreneurial spirit, their interest in independence and financial freedom — can also create challenges in this positon” if the firm doesn’t have the infrastructure in place to support those advisors. It might be a daunting task to some firms if retaining potential successors requires dramatic changes.

Dunne suggested getting those candidates involved by having them help design the infrastructure to best support them. She described one firm that took on a new candidate right out of college. The firm didn’t have an established career path in place, so they asked her to design it.

“She could go out, meet other people in the firm, talk about what was important and create something with her view in mind,” Dunne said.

“It doesn’t have to be done by the CEO or the principal,” she said. “It can be assigned throughout the firm. Ask a young person to create a mentorship program.”

— Read Stop Blaming Millennials for Bad Management on ThinkAdvisor. 


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