Advisory teams with more than $500 million in assets – or “mega teams” – are best prepared to absorb and manage the clients of a retiring advisor, according to new research from global analytics firm Cerulli Associates.
“Close to half of independent advisors retiring within the next five years consider transferring clients to the buyer a major concern in succession planning,” Kenton Shirk, associate director at Cerulli, said in a statement.
Cerulli believes that large, established advisory practices are in the best position to attract advisors looking to sell their book of business or tuck into an existing team.
“These teams are most likely to win acquisitions from retiring advisors because, as a buyer, mega teams can maximize earnouts for a seller,” Shirk said in a statement. “They also have the infrastructure to assume additional client relationships and they are best enabled to provide a seller’s clients with an ongoing positive experience. As broker-dealers (BDs) and custodians consider the risks of mass retirements and successions, they may need to finance internal acquisitions. In doing so, they are most likely to provide resources to those practices best equipped to handle these transitions.”
Cerulli has reported in the past that more than one-third of U.S. financial advisors plan to retire over the next decade.
“While an advisor could have several motivations for wanting to sell their practice or merge with another, many advisors who are approaching retirement are being forced to examine their books of business and prepare succession plans,” according to Cerulli’s research.
Considering the number of advisors that are set to retire over the next decade, this could lead to increasing asset control for the industry’s largest advisory teams – which according to Cerulli’s research already control a “disproportionately large” percentage of market share.
While only 23% of advisors are affiliated with a mega team, they control more than half of industry assets.